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Costs Are Not The Same As Rates

Many “old” media outlets do not identify the authors of their editorials. Thus, when an opinion is offered, you have no way of knowing who wrote it or what their qualifications are. Your only recourse when there is something unsupported or absurd used to be to send a letter to the editor, where you have about a 0.5% chance of being chosen for publication. And they would edit what you sent in. Then, blogs were invented.

This thought was prompted last week when I read a New York Times editorial entitled, “Financing Health Care Reform.” Here’s the quote in question:

Meanwhile, it will be important to get some guaranteed fast savings from the health care industries by cutting and reallocating hundreds of billions of dollars from projected spending on Medicare and Medicaid, as the Obama administration has proposed and Congress is considering. Just to be sure, Congress ought to establish a fail-safe mechanism that could impose additional cuts after a few years if savings are less than projected.

Since I don’t know the author(s) or whether he/she/they actually know anything about Medicare and Medicaid, I am uncertain how to respond to this suggestion. Except to say: “Are you out of your mind?” Medicare rates just barely cover costs today, and Medicaid rates have not covered their costs in years.

This is all part of a general confusion about cost savings versus appropriation savings, a point I made back in March:

On the cost front, the president for now seems to be confusing underlying costs with how much the government chooses to pay. His budget proposal apparently would reduce Medicare payments to doctors and hospitals as a way of building a savings account for greater access. Reductions in appropriations might reduce costs to the federal government, but they do not reduce the underlying costs of care. With 50% of American hospitals operating at a deficit right now, it is hard to imagine how a reduction in federal payments for Medicare patients deals with the cost problem.

If we have a desire, which I support, to provide greater access to health care, let’s consider it a national priority and pay for it directly. But a fear of using the dreaded “T” word — taxes — is causing the executive and legislative branches to force cuts in services. And meanwhile, the President doesn’t want to us to use the word rationing because he knows the negative political ramifications of that (even though we certainly ration care today, mainly by family income). But what do you think will happen if you cut revenue to health care institutions and doctors?

Readers here know that I strongly support improvements in the quality and safety of patient care and the reduction of inefficiencies in the provision of care. Washington seems to think you are more likely get those improvements by underpaying hospitals and doctors for the care they deliver. You will not.

How you get there is not simple, but it involves transparency of clinical outcomes and rate structures so employers and workers can see the actual value offered by different health care providers. This would stimulate competition, too, in that insurance companies could then offer plans and products that reflect providers’ relative value propositions to their subscribers. Meanwhile, let’s pay primary care doctors and other cognitive specialists rates commensurate with their real importance in the health system. Then, they could take the time needed to care for patients appropriately and not just act as a triage way station to higher cost specialties and invasive procedures.

Isn’t it revealing that Medicare and Medicaid could today set an example for all by requiring this kind of transparency and these payment changes, but there has not been the will to do so?

So, instead, we take a political shortcut, one that will have adverse consequences for years to come.

Paul Levy is the President and CEO of Beth Israel Deconess Medical Center in Boston. He blogs about his experiences at Running a Hospital, one of the few blogs we know of maintained by a senior hospital executive.

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NateCraig F KinghornHealth Plan VeteranJamesfailure of transparency Recent comment authors
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Nate
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Nate

Great points Craig, it is failed public plans ruining our healthcare systems not the private plans. Fix the public plans the private can take care of themselves!

Craig F Kinghorn
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Craig F Kinghorn

Paul, thanks for emphasizing the important distinction between “cost” and “rate.” I can’t tell you how often I find that these terms are conflated in discussions about health care delivery and health care reform – including, sadly, by Messrs. Obama, Orszag, et al. However, I believe that your comments actually understate the truly critical aspect of the problem that is obscured by this semantic distinction. At the time of this writing, the Congressional Budget Office (CBO) has scored the Senate HELP Committee’s working markup at $1.6 trillion over ten years and the House’s corresponding bill at $1 trillion over the… Read more »

Health Plan Veteran
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Health Plan Veteran

Hospitals and physicians have a lot of work to do when it comes to medical necessity and price transparency. Two examples immediately come to mind as illustrations of what even educated consumers are up against. First is “routine” lab tests associated with an initial annual physical exam. My daughter went to a Boston Partners-affiliated primary care physician who did a good job with the physical examination and medical history. However, the costs for the lab tests the MD ordered (all of which were drawn at the physician’s office) were more than double the cost of the exam, and none of… Read more »

Peter
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Peter

“Does everyone deserve high quality healthcare?”
YES! But what is low quality affordable healthcare, higher infection and death rates and botched procedures? By the way, private rooms with gourmet food service and a personal masseuse is not quality healthcare, it’s marketing.

James
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James

Unfortunately, we are all caught in a system that has spent the last 20+ years dealing with new regulation from the fed (followed by third party payors) that has driven up costs to provide care on all fronts. Every aspect of this system has made huge amounts of money. The facilities have made money due to a payment system that has been playing catch up. Facilities adjust cost based on what they get paid and get all the margin they can create as in most business. Physician providers (salaried or private practice) have been practicing defensive medicine for years. Until… Read more »

failure of transparency
Guest

if we all knew (including me, the MD) what things actually cost, and we knew what others charged, and we had some way to compare value then in fact we would have a normalized healthcare system that operates the same way a grocery store does. is it feasible? well, not with the current regulatory and legal burdens. for example, the uninsured by law face a fee schedule that typically is 3x medicare. why? because if I don’t charge everyone the same thing, I can get sued for discrimination. So, while it is utterly retarded (and we always reduce our cost… Read more »

Barry Carol
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Barry Carol

Peter, As I understand it, hospitals and all other providers are required by law to bill everyone at the same rate (list price). Payers with whom they have contracts then pay a net rate based on whatever contracted discount from list they were able to negotiate. Medicare and Medicaid pay a dictated rate that they determine which may be more or less than the actual cost of providing the service. To further complicate matters, hospitals are paid for very expensive, complex Medicare cases, called outliers, based on a formula that incorporates the difference between the chargemaster rate (list price) and… Read more »

John Ballard
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John Ballard

“Isn’t it revealing that Medicare and Medicaid could today set an example for all by requiring this kind of transparency and these payment changes, but there has not been the will to do so?” Indeed so. But in order to make any meaningful changes, it is necessary to know what the actual COSTS are. And since health care charges (“RATES” if you will) are nowhere close to the ACTUAL costs, all the players are running about the stage blindly and no one is turning on the lights. After a career in the private sector working hard to squeeze a few… Read more »

Peter
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Peter

Before I had an understanding of how hospitals charge I thought a $265 rate (price) for a simple blood test (liver function, white cell count) WAS the rate when the doc I was using was affliated with UNC hospital; then I found out I could have gotten a 20 item blood test through a local PCP who sent his tests directly to a local, out of hospital lab, for $65. Mr. Levy, what type of transparency would solve this? I always smell a rat when I hear overchargers talk about “value” instead of price. Certainly purged inefficiencies (fraud billing) will… Read more »

Deron S.
Guest

The post makes what I feel is a fundamental point: Our cost issues are not a rate problem, they are a volume problem. Good care should be well paid for, while poor quality care should receive squat. With that said…
Hospital administrators – Please take a fresh look at your chargemasters if you offer ancillary services. Is charging 4x Medicare rates to the uninsured defensible? I think it would be difficult to make that case.

propensity
Guest
propensity

http://www.sybervision.com/sadbully/sadprivate/ewarren.htm
Paul,
What are your thoughts on this Harvard Law Prof and Obama appointee’s commentary? Is she describing your operation or other Harvard “not for profits”? If not, then I challenge you to stand up against the bullies of the health care.

Barry Carol
Guest
Barry Carol

Paul, It is episodes of care that include an inpatient hospital stay or an outpatient visit (including ER visits) that are killing us financially. I wonder, for example, how many of the surgeons who practice at BIDMC or any of the other hospitals in Boston embrace shared decision making for procedures that do not need to be performed on an emergency basis but are scheduled in advance? Do you have a palliative care program for end of life situations? Do the doctors, especially the oncologists, embrace it or resist it? What, if anything, is the hospital sector doing to increase… Read more »

The Bag of Health and Politics
Guest

The reality is that everybody has to give up things to get an efficient health care system. We spend twice as much as any other country (in GDP terms) in the world, but get half the results. The more successful countries have made it impossible to get rich off of the health care system. Don’t get me wrong, good livings can still be earned. But the era of an insurance VP denying preventative care through purges which costs $15,000 (maintenance medications, etc) a year in order to reduce the medical loss ratio must end. What happens is that patients skip… Read more »