Health Policy

Why Medicare for All Will Not Cure What Ails the Hahnemann

By ASEEM R. SHUKLA, MD

The impending closure of Hahnemann University Hospital is a local tragedy.  Eliminating a 170-year old institution is certain to exaggerate the daily travails of the economically disadvantaged inner-city population that Hahnemann serves as a safety-net hospital.  The closure is also a national tragedy. Hospitals are the towering, visible monuments of our healthcare system, and closings imply that something insidious ails that very system—that all is not well.  

Hospitals are complex entities with varied financial drivers, and the solution is never simple.  And the moment is too rich for politicians who see Hahnemann’s failure as the culmination of their dystopian predictions.  Bernie Sanders, most prominently, stood on the hospital’s doorstep and pitched his deceptively simple solution—Medicare for All.  Medicare for All, Sanders said, would ensure that every patient carries the same coverage, hospitals are paid a predictable rate, and voila, no hospitals need to close.  Private insurance would disappear, and no one would be without coverage.  

Even physicians have jumped on the Medicare for All bandwagon.  Some doctors insist that once profit is removed as a motive for hospital bottom lines, and government bodies decide which hospitals can buy a surgical robot, build a new wing or offer proton beam treatment cancer treatment centers, then all hospitals will do better.  

But these arguments miss a fundamental point: why pitch government insurance for all, like Medicare and Medicaid (a federal and state insurance plan to cover low income adult and children) as a remedy, when it is precisely government-run insurance that is killing Hahnemann and other hospitals in distress? 

Consider: Medicaid reimburses, on average, about 50% of Medicare rates, while private insurance reimburses up to 200% of Medicare rates.  It is private insurance that keeps hospitals solvent through cost-shifting—charging private insurance more for the same procedure or hospitalization than what Medicare or Medicaid will pay. 

Of the patients treated at nearly every major hospital in our region that operated at a loss last year, more than 60% carried either Medicare or Medicaid.  Conversely, those hospitals treating the same percentage of patients with private insurance, thrived.

Bernie Sanders will argue that his Medicare for All proposal will remedy inequality by raising Medicaid reimbursements to Medicare levels—an increase of nearly 50% in many cases.  So since the nearly 30% of patients treated at Hahnemann carrying  Medicaid would now deliver Medicare rates to the hospital’s bottom line, Hahnemann would stand to benefit significantly.  

The reality, however, is that a scenario in which all patients carried Medicare and hospitals could not cost-shift to the much higher reimbursements of private insurance, would be unsustainable. The cost of Medicare for All is now well-known—even the left-leaning Urban Institute estimates the cost at nearly $40 trillion over a decade.  Sanders’ tax increase proposals to pay for his plan, if implemented in their politically impossible entirety, would reconcile not even 50% of those costs. And if Sanders tried to sweeten Medicare reimbursements to 111% of Medicare—better, but nowhere close to what hospitals say they need to remain open—the total cost shoots up stratospherically—another 1.5% of G.D.P.   

For all of the criticism of Medicare for All, it is telling that the Trump Administration offers no alternative to sustain hospitals while extending health insurance to all Americans. Only Vice President Joe Biden’s proposal would preserve Obamacare’s vision of a private insurance market even as Medicaid is extended to more lower income people.  His plan is not a panacea, but seems to be the only one that is rooted in preserving and corroborating what works in American healthcare.  Hospitals are not exempt from the blame and for powerful lobbying to fight the public option, global payments and increasing costs that keep insurance premiums on the ascendant.  Nor do insurance providers acquit themselves well in this debate with rising overhead costs, executive compensation packages and the daily torture they subject providers to in obtaining clearances.  But the simple argument that Medicare for All will salve these ills is a reductive fallacy.

The consequence of the status quo is manifest in Hahnemann’s fate. But Hahnemann is also the canary in the coal mine foretelling what Medicare for All would reap in a world bereft of cost-shifting alternatives. Our community needs Hahnemann; pushing to “Go Big and Go Bold” while standing on the hospital’s deathbed? Not so much.

Aseem Shukla, M.D. is Associate Professor of Surgery (Urology) at the Perelman School of Medicine at the University of Pennsylvania.  He tweets at @aseemrshukla.

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spikeHealth Policy WonkDr. JimPaul @ Pivot ConsultingLLCBarry Carol Recent comment authors
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spike
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spike

It seems like Hahnemann is a bad example to use for any trend other than that of Private Equity firms identifying any financial inefficiency they can and exploiting it, regardless of the impact to the community. There’s no way the healthcare industry can compete with real estate developers in generating a financial return on prime real estate in a gentrifying neighborhood. Nor should it. States need to pass laws making this kind of activity illegal or we will see much more of this and more poor and gentrifying communities will be left without hospitals.

Barry Carol
Member
Barry Carol

The very large Jefferson Hospital campus in the heart of Center City Philadelphia is no more than a mile or so from Hahnemann Hospital so it’s not like Hahnemann patients will be stranded without a hospital. In New York City, Beth Israel is in the process of closing its 825 bed hospital that dates back to the 1880’s and will replace it with a 70 bed hospital. It’s not because the neighborhood is gentrifying but because that particular market simply needs fewer beds due to better drugs and less invasive surgical techniques. In addition, a large VA hospital, the safety… Read more »

spike
Member
spike

40,000 ER visits annually have to go somewhere. It’s possible there is enough bed capacity to meet demand, at a 259 average daily census, it’s not as if Hahnemann was empty. And none of that changes the fact that a PE company came in, realized the real estate was more valuable than the hospital (which it almost always will be on a 3% margin business), sold the hospital off for parts and kept the real estate to build luxury apartments. Single-payer, multi-payer, you name it, that can still happen no matter how care is paid for and it should be… Read more »

Barry Carol
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Barry Carol

According to the most recent annual report from the Pennsylvania Health Care Cost Containment Council, Hahnemann earned an operating margin in fiscal 2018 of -29.68% on revenue of $413 million. The average for Region 9 (Philadelphia) was +2.35%. Operating margin results for the three largest academic medical centers in Philadelphia for fiscal 2018 were as follows: Temple: 2.44% on revenue of $1.165 billion; Thomas Jefferson University, 1.17% on revenue of $1.586 billion; and Hospital of University of Pennsylvania, 8.61% on revenue of $2.751 billion. Note that Temple is not in a very good neighborhood either but is doing OK. I… Read more »

Barry Carol
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Barry Carol

Hahnemann has 500 beds so an average daily census of 259 patients equals an occupancy rate of 51.8%. That’s way too low to sustain the hospital or any hospital for that matter.

spike
Member
spike

Not sure why you would say they had 500 beds, they are Medicare certified for 430, with 387 designated for acute inpatient usage and 20 designated for psychiatric care (or 407 beds in use) so their occupancy is 63.4%. Not great, but why bother using grossly inaccurate stats? Einstein’s is 64%. Also, I’m not sure where you’re getting your numbers. University of Pennsylvania has an operating margin of 0.3% (7.9M on $2.4B of net income), but their investment income and miscellaneous non-patient revenue (i.e. grants and donations) account for an additional $334M in revenue to get them to the 8.6%… Read more »

Barry Carol
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Barry Carol

My information came from the most recent annual report of the Pennsylvania Health Care Cost Council and covered fiscal 2018 ended June 30, 2018. According to the same report, statewide hospital inpatient discharges decreased by 1.65% per year from 2008-2018 to 1.55 million from 1.83 million. Less invasive surgical techniques make it possible to perform more surgical procedures on an outpatient basis or reduce the length of stay if they still must be performed on an inpatient basis. Better drugs are keeping more people out of hospitals in the first place. Many of those outpatient procedures can be safely performed… Read more »

Paul @ Pivot ConsultingLLC
Member

Thanks for the info/data….especially the Pennsylvania Council financial data. (Do you know if there are similar reports for other states?).

The May2019 Rand report based on actual contracted payments showed New York had the lowest charges…170% of Medicare vs a national average of 240%….

Paul @ Pivot ConsultingLLC
Member

You say “private insurance reimburses UP TO 200% of Medicare rates. It is private insurance that keeps hospitals solvent through cost-shifting”…..but it is much worse than that per Rand Corp analysis of data from 25 states:
” The result is a uniquely detailed look at the pricing practices of specific hospitals in 25 states. RAND’s summary:
ON AVERAGE case mix-adjusted hospitals were 241 percent of Medicare prices in 2017. “

Paul @ Pivot ConsultingLLC
Member

We must have price transparency, which will release all kinds of transforming effects…..beneficial ones.

LeoHolmMD
Member
LeoHolmMD

No kidding. It’s one if the few steps that could be taken literally overnight. Massive benefit to patients and physicians. The overlords hate it. They need occult pricing to cover up their dirty deal making.

wrosenberg001
Member
wrosenberg001

How soon we forget, in 1964 (before Medicare), seniors could not buy health insurance at any price, most hospitals raised their capital from philanthropy and, if they took Hill-Burton money, had to provide charity care. Medicare payment rates are not driving hospitals out of business, they’re just what the largest payer out there can get away with. Do you really think that if Medicare were the single payer they’d get away politically with paying inadequate rates? The problem with Medicare for all is that the 150 million who have insurance at work are more scared of losing it than they… Read more »

Barry Carol
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Barry Carol

Decent employer coverage works fine for most people most of the time. When it doesn’t work is when an employee quits, gets laid off or gets too sick to work. When that happens there needs to be a heavily subsidized alternative in the individual market or subsidized Medicare to transition into. In any given year, there might only be a few million people at most who need that out of the 150 million or so with employer coverage. It makes no sense to blow up and disrupt the entire system when this problem can be fixed with a scalpel instead… Read more »

matthew holt
Admin

the key phrase is “nowhere close to what hospitals SAY they need to remain open” Of course any industry says they need more money. But the real question is, if hospitals were properly cost constrained would we not have a much more rational health system with fewer hospitals and much better community care. If you look across the globe at places where health care costs half as much, that is what happens. That’s what Philadelphia needs–not another shitty hospital. I was also very amused by the comment about the Biden “plan is not a panacea, but seems to be the… Read more »

William Palmer MD
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William Palmer MD

It’s no longer possible to think about our health care system clearly because we have kept modifying and jury-rigging the thing for so many years that it has become grotesque. Just look at the acronyms “MCD/MCR” below, used by Dr Holm. Can you instantly understand his point? Do the physicians know what is going on with the PBM and GPO kickbacks? And why are they doing this? Most docs don’t even know what a GPO is. Just look at the confusion about the ACO idea. We can’t imagine solutions if we are staring at a complicated chess boards all the… Read more »

Barry Carol
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Barry Carol

Issues that make our healthcare system more expensive than those in other countries include the following: (1) Our litigious society drives the medical specialty societies who develop practice patterns that define the standard of care to make them more testing intensive than elsewhere in order to ward off malpractice suits for unfortunate outcomes that are not the doctor’s fault. This is a cultural issue that won’t be impacted by a Medicare for All or any other single payer system. (2) We provide and often demand much more marginally useful and even futile care at the end of life because family… Read more »

Health Policy Wonk
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Health Policy Wonk

I’m sorry, but this just isn’t accurate. As the late Uwe Reinhardt and many other health economists have documented the single biggest contributor to the higher health care spending in the US vs. the other OECD nations is unit pricing. All the other arguments are largely red herrings. Hospitals, physicians, life sciences firms, et al. charge more in the US because they can–due largely to our fragmented payer system. While this doesn’t get discussed much in the mass media, the success or failure of a single payer plan like “Medicare for All” will rest on the ability to ratchet down… Read more »

Barry Carol
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Barry Carol

Higher unit pricing for hospitals most likely reflects higher unit costs caused by higher compensation across the workforce and, possibly, lower average occupancy rates in a business that’s highly capital intensive. I have never seen a study comparing the costs of academic medical centers and community hospitals in other developed countries vs. similar hospitals in the U.S. There could well be significant differences not only in compensation but the number of employees per licensed or occupied inpatient bed and average occupancy rates as well.

William Palmer MD
Member
William Palmer MD

Don’t all the OECD systems have unit pricing? …at least internally between hospitals and governments e.g.? How can we bundle pricing when biological problems in humans are fragmented and there is so much co-morbidity going on? Also, how can this be the biggest problem in US healthcare if is not a big problem in many multi-payer systems, like Japan? How are we supposed to bill for a hip fracture if the patient also has a small stroke and a little Parkinson’s and diabetes? Well, what if you can convince us? Can we get rid of pricing and billing altogether by… Read more »

Barry Carol
Member
Barry Carol

Dr. Palmer, I don’t see it happening and I don’t think it would work if we tried it. What I can see for hospital based inpatient care is to go back to a standard daily semi-private or private room rate that would cover all care the patient needed except for drugs, imaging, surgery and physician fees. They don’t need to bill for each time they take my vital signs, provide me with a bed pad or commode, etc. Use of an operating room suites should be billed based on a reasonable fee per 15 minute unit of time regardless of… Read more »

William Palmer MD
Member
William Palmer MD

I sat on the Board of my hospital for a couple of years and we just set our charges according to what we needed for our costs and new programs. No real worry. We just did it. The marginal costs of each service or good had nothing to do with our charges. Well, rarely they did, I should say. We needed competition from other hospitals. We also needed the patients to understand charges and to squawk. We needed ways to argue fairly and intellectually with physicians who wanted a new piece of equipment or a new expensive formulary drug. And… Read more »

Barry Carol
Member
Barry Carol

It sounds like it’s very hard for hospital boards to say no to expanded programs, buying state of the art equipment to keep the surgical referrals coming in and to add expensive drugs to the formulary because at least some patients will benefit. As I understand it, the biggest moneymakers for hospitals are surgical procedures and cancer treatment plus imaging so hospitals understandably want to maximize those businesses. At the end of the day, the profitability of any given hospital is probably driven mainly by a combination of average occupancy rate, payer mix and case mix.

Aseem
Member
Aseem

I put my finger in the water about this a couple of years ago. My reasons for what makes healthcare complicated: https://thehealthcareblog.com/blog/2017/04/14/yes-mr-president-health-care-is-complicated-and-also-hard/

Barry Carol
Member
Barry Carol

That was an excellent essay. Thanks for the link to it. I wonder why with the increase in the number of doctors who are now members of congress there hasn’t been more straight talk about what makes our healthcare system so expensive, especially with respect to end of life care.

LeoHolmMD
Member
LeoHolmMD

I wonder how many people understand that MCD/MCR is considered a”safety net” as is occasionally suggested. That is a heck of a large population to toss into a safety net… never-mind thinking of tossing the whole population in. If anyone talking single payer is serious, they need to stop thinking they can use safety nets to address the health of the entire nation. CMS does not have the infrastructure, resources, skill set, or political will to undertake Medicare for all.

Barry Carol
Member
Barry Carol

I would be curious to know what Hahnemann’s average inpatient occupancy rate was over the last few years as hospitals are high fixed cost businesses and need to sustain a reasonably high occupancy rate to cover their costs. The long term secular trend in the number of licensed inpatient hospital beds per 1,000 of population in the U.S. has been declining for decades and continues to so maybe the Philadelphia just market doesn’t need Hahnemann anymore. At the same time, any given hospital’s payer mix has a huge effect on profitability and most safety net hospitals have a lousy payer… Read more »

Peter
Member
Peter

“Presumably wait times for care, including non-emergency surgical procedures, would increase.” What wait times would be acceptable for you Barry? Average emergency wait time in U.S. seems to about 2 hours, although here in Chapel Hill NC I’ve not heard of anyone waiting less than 4 hours. Why would our wait times have to be like anyone else’s – are we better? Canada’s wait times: http://waittimes.cihi.ca/?_ga=2.151915322.2088400299.1566403219-1338689130.1566403219 “Utilization would likely increase as patients would have an incentive to go to a doctor just to seek reassurance for minor problems that probably would have resolved themselves within a day or two.” The… Read more »

Aseem
Member
Aseem

I agree with your points, Barry. Take a look at Table 4 here: http://www.phc4.org/reports/fin/18/docs/fin2018report_volumeone.pdf, Take a look at the delta between commercial insurance and Medicare/Medicaid–more than double. I suspect the problem is that Hahnemann was caught in a downward spiral. Though located in a gentrifying Center City location, Hahnemann didn’t have resources to invest in centers of excellence or technological breakthroughs to attract a favorable enough payor mix away from Penn, Jefferson and Temple–all a few miles away–and cost-shift out of trouble. Without the commercial mix, a 60% Medicare/Medicaid mix made it unsustainable to survive, even with state support for… Read more »

Peter
Member
Peter

“Hahnemann didn’t have resources to invest in centers of excellence or technological breakthroughs to attract a favorable enough payor mix away from Penn, Jefferson and Temple” More likely no money to spend on palatial lobbies, FoFo coffee bars and concierge valet parking. Hospitals should be community owned with help from the tax payer when their existence can be justified. Saying patients can just drive to another hospital does not recognize the stated low income (safety net) patient mix, who may not have a lot of transportation options. Present solutions in health care always seem to be about spending more, not… Read more »

LeoHolmMD
Member
LeoHolmMD

Good old fashioned vulture capitalism.

Barry Carol
Member
Barry Carol

Wages and benefits account for 55%-60% of revenues for most hospitals, especially academic medical centers like Hahnemann. Utilities, insurance, depreciation or lease payments on expensive equipment and uncompensated care account for most of the rest. I don’t think you appreciate that payer mix is a big deal for hospitals and Hahnemann’s is lousy. Medicare works as well as it does because there is still a reasonably large commercially insured sector to shift costs to. Most U.S. hospitals are non-profit and operating margins are thin. It’s also worth noting that most of the labor cost for hospitals is accounted for by… Read more »

Peter
Member
Peter

“I don’t think you appreciate that payer mix is a big deal for hospitals and Hahnemann’s is lousy.”

How do you get “payer mix” with hospitals located in the poor parts of town? Is that population not entitled to quality hospital care close to their community – like everyone else wants?

Barry, do you feel resentful when you’re sitting next to another patient (getting the same level of care) who gets their subsidy from the government while you get yours from your employer?

Barry Carol
Member
Barry Carol

Peter, first, Hahnemann is located just a few blocks north of City Hall in the heart of Center City, Philadelphia. It’s not a poor neighborhood and the area is in the midst of significant gentrification. Moreover, Hahnemann is widely viewed as a very good hospital for cardiac care. Second, I’m on Medicare now, not on employer coverage. Also, I’ve been hospitalized a number of times over the years and on at least two occasions had roommates who were on Medicaid. It didn’t bother me in the slightest. With heart related issues, most patients are older and are more likely than… Read more »

Peter
Member
Peter

“the area is in the midst of significant gentrification.”

That usually means poor people being forced out due to higher rents and evictions. So where were all those high paying gentrifieds getting their hospital medical care?

Don’t you just love that government subsidized health care.

Peter
Member
Peter

“I’m on Medicare now” was supposed to be inserted into my last comment.

Barry Carol
Member
Barry Carol

Poor people aren’t necessarily forced out. Philadelphia is a city of row houses (townhouses in today’s vernacular) quite a few of which are abandoned or have been torn down in poor areas. Also, much real estate improvement in poor areas in cities in the Northeast involves converting closed factories and warehouses into apartments, both rentals and condos. Obsolete office buildings are also being converted into apartments. Relatives of mine for several years lived in an apartment building in Center City that was once an office building occupied by an insurance company. There are poor neighborhoods not far from Hahnemann and… Read more »

Peter
Member
Peter

Barry, if what you are saying is the case then why is Hahnemann closing given as not enough high payers were using it? From a quick search Philadelphia seems to be doing better at least on homelessness, even with a poverty rate of about 25%. I doubt any of those people can afford live in the redeveloped upscale areas. I am in favor of rationalizing the existence of hospitals, but private and government ownership uses directly opposed reasons for rationalization. If poor people can easily access another hospital, that’s OK, I doubt the owners of Hahnemann used any community considerations… Read more »

Dr. Jim
Member
Dr. Jim

” But there has to be an innovative way to keep the Hahnemann’s in business” Could you expand on your point a bit? I have been practicing in various environments (AMC, public hospital, private voluntary “nonprofit”) since 1979. It is apparent that, since the introduction of prospective payment in 1986, the hospital industry has transformed itself with regard to revenue and expense such that hospitals grow and grow while the number of days they render care shrinks and shrinks, and outpatient care (in the sense of caring for seriously ill people) atrophies. Something is seriously wrong when pushing frightened little… Read more »

Peter
Member
Peter

“and other unnecessary hospitals”

It’s always the other guys unnecessary hospital.

Peter
Member
Peter

For-profit hospitals seem unmoved to cut cost of care – even if patients can’t know the true cost of care from the blotted bills. Yes, Med for all would give the entire system less money, but that’s exactly what it needs to force cost cutting, at all levels including wages and doc and CEO reimbursement.

It’ll be painful, but not as painful as patients trying to afford necessary care.

Aseem
Member
Aseem

Don’t disagree with the sentiment, but upending an industry that makes up nearly 20% of GDP and then hoping it puts itself back together completely transformed seems like quite a risk, and the consequences are enormous. I’m not an incrementalist, nor a revolutionary! Surely there’s a middle way, and Obamacare is a reasonable template to build out.

Peter
Member
Peter

“Obamacare is a reasonable template to build out”

Talk to Trump and Republicans about this.