Medicare

What Medicare's Payment Woes Tell Us About the Limits of Technocratic Reforms

Paying for value turns out to be harder than it sounds.

|

credit: Alex E. Proimos via Foter.com / CC BY-NC

One of the most common refrains in health policy over the course of the Obama administration has been paying for value. This is one of those conveniently vague phrases that mean a lot of different things to a lot of different people, allowing them to agree on the concept without agreeing what actually entails. But the basic idea is that, somehow, through the right combination of tweaks and overhauls to system, the nation can get better health care while spending less money. In practice, that usually ends up meaning imposing and experimenting with complex new payment models, designed by experts in hopes of changing incentives for medical providers.

This was the core idea espoused by Donald Berwick, the Harvard professor who, after a recess appointment, served for a little over a year as the administrator of the Centers for Medicare and Medicaid Services (CMS) at the beginning of Obama's time in office. It was an idea built into the Affordable Care Act, which granted the administration greater authority to develop and experiment with new payment models. And it was the explicit goal of the administration's announcement at the beginning of this year that it overhaul much of Medicare's payment system in an effort to promote value-based care.

This is a noble project, and arguably necessary, given the perverse incentives of many legacy payment models, which tend to pay for specific services, and thereby encourage health care providers to focus on volume without regard to health outcomes and to rely on more expensive courses of action even when they may not be necessary.

But it also turns out to be a rather difficult task, one that reveals the limits and challenges of technocratic reform projects, and the ways in which political considerations can overwhelm expert-driven policy.

Take, for example, the administration's failed push this year to change the way that Medicare pays for some of its most expensive drugs. A few months after the goal-setting announcement, CMS said it would embark on a five-year experiment to change the way it pays for outpatient drugs in Medicare Part B, under the auspices of the Center for Medicare & Medicaid Innovation (CMMI), a unit created under Obamacare to head up experiments with health care delivery reform.

The first phase would target high-cost drugs, reducing the 6 percent add on that doctors get for prescribing drugs in the program to 2.5 percent, plus a $16.80 flat fee. The long-term plan would be to expand the demonstration project to a wider array of value based purchasing options, to be announced later on.

The theory behind the plan was to reduce the incentive for doctors to prescribe a higher cost drug when a medication of equal or greater effectiveness was available for less. One problem with this theory was that in some cases, no alternative drug existed. So in practice what this meant was the Medicare was simply going to slash payments dramatically to doctors who prescribed a lot of very expensive pharmaceuticals—for example, oncologists, who tend to rely on pricey drugs to treat cancer patients.

As you might imagine, this did not go over well with cancer doctors or with patient advocacy groups. Within weeks of announcing the plan, the administration began talking about creating exceptions for certain oncology practices.

The rest of the story goes about like you might expect: In the months after the announcement, multiple congressional hearings were held. The administration defended its plan, noting the rise in Part B drug spending, and doctors and patient advocates and drug industry representatives made their cases in response, with House Republicans objecting to the fact that participation was mandatory. The Congressional Budget Office, which had estimated that the existence of CMMI would save about $34 billion over a decade even before the projects themselves were announced, was dragged into the fight as well.

There were reasons to question whether the demonstration plan would work as intended without any significant negative tradeoffs. But the more fundamental challenge wasn't really about whether it would be effective or not. Instead, it was about whether it could survive the political process. Indeed, in some ways, the more effective the program was the worse the politics would be: Any effort to create savings in the health care system is ultimately an effort to cut someone's paycheck. And in this case, that someone turned out to be two politically influential groups: Drug makers and cancer doctors.

By the end of the year, it became clear that the administration was out on a political limb that wouldn't hold up. Republicans opposed the plan more or less predictably, but so did leading congressional Democrats, including House Minority Leader Nancy Pelosi and Senate Minority Leader Chuck Schumer. A month after the election, CMS officially announced that it was shuttering the program, citing "strong concerns" from "a number of stakeholders."

In the end, this wasn't a Republicans-versus-Democrats story. It was an administration-wonks-versus-everyone story. And the wonks lost.

The Part B demonstration project was probably the largest payment-reform project to struggle this year, but it wasn't the only one.

When CMS announced the Part B demo, it noted that it was following in a series of value-based care models, such as Accountable Care Organizations (ACOs), which are intended to encourage large groups of health care providers to more effectively network in order to offer more effective holistic care. As with all such programs, this is accomplished mostly through payment incentives, with hospitals and medical practices being for hitting certain benchmarks—and, in some cases, penalized for failing to do so.

One problem was that most of the provider groups participating in the ACO program didn't hit the initial benchmarks. Half of the top tier ACOs—the supposed poster-organizations for the program—dropped out. One organization that seemed primed to do well in the program, however, was Cornerstone Health Care, a physician group based in North Carolina, one of the few ACOs to score high enough on the benchmarks to qualify for payment bonuses. But as The New York Times reported recently, Cornerstone collapsed into a financial crisis this year, and was eventually bought by a rival hospital system. Cornerstone's troubles stemmed from compensation issues. Pricey medical specialists left for bigger paychecks at competing provider groups, capital costs required to organize the new structure grew, and a group of doctors sued the hospital for mismanaging the hospital and trying to pay its debts "by arbitrarily reducing the compensation of certain disfavored physicians."

It's a much smaller-scale story than what happened with the Part B, and it intersects less directly with national politics. But the basic problem for both was the same: A plan to save money in the health care system by adjusting payments and practices inevitably meant a plan to cut someone's paycheck.

Health policy payment reforms have long had difficulty finding success. As former CBO director Douglas Elmendorf said in 2011, the results of Medicare's demonstration projects have tended to be "disappointing" and "discouraging." Most of these programs simply don't work as intended.

On consistent lesson from these failures is that it's as important to make the politics work is as important as getting the particulars of the policy right. A well-designed policy that is likely to fail politically is not a well-designed policy. Often the two are at odds.

Another is that it is better to avoid entangling complex and vital systems—like, say, the health care sector—with politics in the first place. Because we are now in a situation in which we have a health care system that weighs down both the federal government and the private sector, a system which nearly everyone agrees is inefficient and unsustainable in its current form, but which, despite the efforts of reformers, also consistently and frustratingly refuses to be reformed.

Advertisement

NEXT: Jerusalem Settlement Vote Postponed, Boy Scouts Ban Transgender Boy, Enjoy Your Pea Milk: A.M. Links

Editor's Note: We invite comments and request that they be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of Reason.com or Reason Foundation. We reserve the right to delete any comment for any reason at any time. Report abuses.

  1. A plan to save money in the health care system by adjusting payments and practices inevitably meant a plan to cut someone’s paycheck.

    Sounds like a lot of greedy individuals don’t mind riding roughshod over the constitutional right to healthcare.

    1. Government healthcare is the ultimate in crony capitalism.

    2. There are small practices/private practices/rural practices for whom these plans “to cut someone’s paycheck” are a very big deal. I work for a tiny physical therapy office, & the ACA has been a disaster for us. Paperwork has tripled but reimbursement has plummeted. We are not allowed to make treatment decisions based on what is best for the patient but rather based on what their insurance has decided is the “medically reasonable & necessary” course of action. Anthem says that once a patient has reached 67 degrees of motion in their shoulder (the amount it takes to lift a coffee cup to your mouth), any further treatment is “not medically reasonable or necessary.” UnitedHealthcare has a $70/day reimbursement cap – of which the patient pays $40 (and that’s in-network rates). Altius will deny coverage of a prescription medication & instead ask the patient to just take 2x as much of the OTC version. And don’t even get me started on Medicare (Suffice to say our favorite office in-joke is “Medicare don’t care.” We’re thinking of having t-shirts made.)

      Every insurance company, if asked, would deny that they make decisions on your care based on cost first. They would say they are simply holding physicians to standards of “quality,” but their definition of “quality” is “what is the bare minimum of care this individual can receive & still live so that we can continue to collect their premiums?”

      1. “They would say they are simply holding physicians to standards of “quality,” but their definition of “quality” is “what is the bare minimum of care this individual can receive & still live so that we can continue to collect their premiums?”

        So what?

        1. Is that a serious “so what?” or a sarcastic “so what?” Because it seems really obvious that as long as Medicare & other insurance companies have the healthcare industry trapped by the balls that money is always going to take precedent over the quality & quantity of an individual’s healthcare. I would wager that most people would consider that a bad thing.

          So it must’ve been a sarcastic “so what?”

          1. “Medicare & other insurance companies have the healthcare industry trapped by the balls”

            And THAT is where a big part of the problem lies. Healthcare itself has become so expensive that almost nobody can self-pay; they need insurance. This was only cemented further with the individual mandate in Obama(doesn’t)Care.

    3. Where in the Constitution does it say you have a right to medical care? By ‘greedy’ do you mean the majority of the people in the country who have no idea who you are or even remotely give a fuck that you exist and see no reason why they should be financially responsible at all for you?

      1. FoE is being sarcastic there.

        1. Poe’s law got me too it seems.

    4. ” the constitutional right to healthcare”

      I’ve been looking for this and I don’t see it in there–in the Constitution–anywhere!?

  2. “And it was the explicit goal of the administration’s announcement at the beginning of this year that it overhaul much of Medicare’s payment system in an effort to promote value-based care.

    This is a noble project, and arguably necessary, given the perverse incentives of many legacy payment models, which tend to pay for specific services, and thereby encourage health care providers to focus on volume without regard to health outcomes and to rely on more expensive courses of action even when they may not be necessary.”
    It is not noble and not necessary and there is certainly little value for dollars spent.

    Noble gestures would entail real discussions and legislative actions to dismantle Medicare, Medicaid, Obamacare and all government run health systems.

    If people need poor people to have money for healthcare instead of letting everyone plan and pay for their own health, then give poor people HSAs, so they can only use they money for health related care and hospitals and doctors would have to compete for those patients.

    1. The only noble projects, from a libertarian standpoint, would be anything that helps eliminate the divorce between the healthcare purchaser and the healthcare recipient.

      That Suderman instead chooses to celebrate wonkery intended to ‘right the wrongs’ of prior wonkery is unsurprising if not banal.

      1. He’s just another liar plaguing this once great journal.

        Go make the jump to Vox full time, Macadoodle.

      2. The only noble projects, from a libertarian standpoint, would be anything that helps eliminate the divorce between the healthcare purchaser and the healthcare recipient

        This. I can get on board with abolishing Medicare, Medicaid, and other government-run health care programs. But if anything that doesn’t go far enough. Much of private insurance (which began not as actual insurance but as a cronyist mechanism for docs and hospitals to guarantee payment) needs to go as well.

        Free-market health care payment would probably be centered around HSAs, with actual insurance for health needs that are truly unexpected and catastrophically expensive (unlike “insurance” today, which offers less help in these situations than you’d expect). So, you’d pay out of pocket for low-cost, foreseeable things like preventive screening, and get help from insurance when you needed it most. IOW, pretty much the exact opposite of how things work now.

        1. The recipe, on the patient payment side, is:

          HSAs + catastrophic coverage + portability

          You use the HSA for regular expenses, the catastrophic coverage for emergency expenses, and also have the ability to keep both of those from year-to-year and place-to-place. One of the few legitimate uses of the “interstate commerce” clause would be to force states not to fuck with people’s savings or insurance from other states.

          The recipe on the hospital/doctor side is:

          Break the strangehold of the AMA and affiliated groups, while drastically curtailing health and medical regulations.

          1. Agree.

            Instead of the mandate and penalties, instead of the coverage for everything under the sun…

            Define a true meaningful minimum catastrophic insurance plan. Heart attack, broken arm, yes; birth control, breast enlargement no.

            Structure the above as an HSA with high-deductible plan.

            Allow insurers to penalize pre-existing conditions and non-coverage. Pre-existing conditions excluded for 2 years, but like HIPPA rules today, cannot be excluded if converting coverage from one company or plan to another (i.e. portability).

            At some age, maybe 21 or 25, young people must convert from their parents plan to one of their own, to establish their continuous coverage baseline. If they do not do so, they will face pre-existing conditions exclusions and higher premiums. By converting at a young age, they have time to build up their HSA.

            Normalize tax deductions for self-employed vs coverage at work. Both deductible or neither. In the end, preferably, encourage individual plans rather than employer-provided plans, for increased continuity and further eliminate a 3rd-party (employer) from the system.

            1. This suggestion is far too reasonable to ever receive serious consideration!

              1. It’s both stupid and authoritarian, since it mandates an HSA for everyone. At NO time since HSA’s originated (under Reagan) have a majority chosen it as an option.

                PLUS, many employers self-insure which has no insurance except above a total amount for the entire employer. Who has any right to ban this market option to employers? When I was a school board member, we self-insured all employees up to a fairly large amount — and bought “reinsurance:” for only the excess. Think of it as high deductible for the entire group rather than the individuals, but it works better by spreading the risk further.

                Pre-existing conditions can also be handled by called reinsurance. That’s when insurance companies buy a policy covering THEMSELVES from excessive losses. Pre-existing does not GUARANTEE higher costs — only greater risk. Spreading the risk among ALL pre-existing people reduces the insurance costs (on average).

                HIPPA portability can be extended to non-group coverage, thus further breaking the employer link. The risks are identical. Even Medicare uses a version of it for those who enroll after their initial eligibility (typically those who work after retirement age)

                But reality says it’s not possible to easily ignore pre-existing conditions, mostly because fiscal conservatives have done a shitty job of explaining to voters — preaching to the choir with slogans and soundbites (as always)

        2. “Much of private insurance (which began not as actual insurance but as a cronyist mechanism for docs and hospitals to guarantee payment)…”

          Private insurance became widespread due to the wage caps put in place by the government around the turn of the century; intended to be a method of getting around those wage caps and attract better talent for the same wage.

          Slightly over 100 years later we’re still paying for those wage caps, it would seem, and there are plenty of people willing to forget why employer sponsors insurance became a thing in the first place. Make no mistake, employer sponsored healthcare is virtually the entire market. Putting something like the ACA in place for the tiny fraction of people outside that system was always a boondoggle and was always going to make rates skyrocket. It was the only thing that could happen.

          In other words, the government has spent the last 100 years fucking up the healthcare system and their results have been failure pretty consistently. Remind me why people continue to think it’s a good thing the government is involved?

          1. “Private insurance became widespread due to the wage caps put in place by the government around the turn of the century; intended to be a method of getting around those wage caps and attract better talent for the same wage.”

            Nope.
            It was post WW11 when Truman kept wage controls in place and the work-around to attract talent was to offer un-taxed ‘benefits’.

            1. And Truman had nothing to do with the 3-step process. Benefits were exempt from wage controls in 1943 — under FDR. The tax-free ruling by IRS was in 1954, long after the war had ended.
              Truman’s term saw the benefits become subject to collective bargaining, which seems like a technicality and had nothing to do with wage caps or tax exemptions.

              http://www.nber.org/papers/w14839.pdf?new_window=1

              What strikes me as critical is that today’s fucked up healthcare system was created under FDR! As a few have suggested, there was virtually no for-profit health insurance before FDR. Most coverage, where there was coverage, was provided through then-common ethnic and fraternal lodges. Switching the focus to employers created a new class of groups, based on employer not ethnicity. My dad had described standing in line every payday at his ethnic lodge, paying “dues” TO A VOLUNTEER!

              Thank you FDR.

      3. would be anything that helps eliminate the divorce between the healthcare purchaser and the healthcare recipient.

        I know the theory as well but I’m genuinely curious as to how it’d function. Patients have some condition (eg Alzheimers or heavy bleeding or unconscious) that prevents them from engaging in commerce. Otherwise they’d be doing that not going to the doctor. They are – a Norwegian Blue parrot. ‘Providers’ are not lined up like a farmers market competing for business from a parrot pining for the fjords. And the medical field is always going to be divided into relationship-based (generalists) and transaction-based (specialist) functions anyway – with extreme information asymmetry.

        I did this wonkery with big employers and could see the govt distortions, and the why is the employer even involved in this shit, and the whiny entitlement mindset of employees whenever they personally are on the hook. But I can also see why this ‘free market’ doesn’t exist and doesn’t naturally arise.

        Its not an accident that churches were the ones who first stepped into this here in the US – and looking around at all the nearby hospitals founded by different denominations they created the medical infrastructure in the US. But even that sort of voluntary civic association will fail to resolve what you are talking about. And it can’t solve other basic market problems.

  3. Markets determine value. Or it is Top. Men. I forget.

  4. Let’s pin it on Trump.

    1. Are you crazy?
      It’s BOOOOOOOOSH!!!!!

  5. WTF? Medicare pays doctors a percentage of the cost of drugs they prescribe? That’s insane. If anything, doctors should be discouraged from prescribing drugs.

    1. Well, Medicare makes up for it by reimbursing pharmacies for less than the cost of those drugs, so it’s all good.

    2. Doctors should be encouraged to provide their patients with these best care at the best price.

      1. The “best care at the best price” in most cases is “lose weight and exercise regularly”, not to prescribe drugs or needless surgical procedures, both of which tend to cause even more problems.

        So, yeah, discouraging doctors from prescribing drugs is encouraging the “best care at the best price”; the best care for a lot of medical conditions is lifestyle changes, which cost nothing.

        1. Well, keep in mind that anyone using Medicare is either elderly or falls into a special class of serious illness (eg, ESRD). Very few of these people are super-healthy, and “prevention” for them is less about keeping them from falling ill, and more about maximizing quality of life in the face of declining health.

          1. ESRD is mostly a consequence of diabetes and high blood pressure, i.e. obesity, poor nutrition, and lack of exercise. In general, most of Medicare spending is linked either to preventable chronic conditions and pointless end-of-life interventions.

            Doctors, hospitals, and drug companies have a strong financial incentive to spread the false idea that the quality of life for the elderly is mainly dependent on medical care, when the primary determinant of the quality of life for the elderly is lifestyle. And since people are insulated even from the financial consequences of their bad choices, they don’t even get market-based feedback.

            Medicare is an obscenity: it causes people to get sick for the financial benefit of doctors, hospitals, and drug companies. Extending that to single payer healthcare for everybody is even worse. If you want a healthy population, the best thing to do is to have people face the consequences of their choices, financially and medically.

            1. Medicare is awful, but my point is that the primary prevention needs to happen long before patients are Medicare-eligible.

        2. The “best care at the best price” in most cases is “lose weight and exercise regularly”….

          Also, perhaps a laxative for RE on account of him being so indescribably full of shit.

        3. The “best care at the best price” in most cases is “lose weight and exercise regularly”…let’s add “and stop smoking”

          In 1998 the medical costs of obesity were estimated to be as high as $78.5B, with roughly half financed by Medicare and Medicaid.

          By 2008, it was estimated to be $147 billion per year.

          Today, annual health costs related to obesity in the U.S. is about $200B, and more than 20% of medical costs in the U.S. can be attributed to obesity.

          Healthcare costs for smokers are about 40% higher than non-smokers, and about 10-15% of all healthcare costs in this country are related to smoking. Of the $150 billion spent on smoking-related healthcare, more than 60 percent was paid by government sources

          So about 1/3 of all healthcare spending in the US is directly related to “lifestyles” of obesity and smoking.

    3. No, Medicare does not, nor can anyone do so legally. Kickbacks for prescriptions, which is what such a payment would be, are against federal, and usually state, law.

      Poorly written article. Follow the link “no alternative drug existed” to the original article.
      CMS was planning on cutting the reimbursement they paid to physicians for “physician-administered drugs” (the key concept here) from 106% of average price to 102% plus $16.80.

      In other words, cutting what CMS would reimburse the doctor for his/her cost of purchasing the drug in the first place.

      If the doctor paid the average price or less, there would still be a small mark-up on the drug, if the doctor had paid more than average, there would be a potential loss.
      Given that drugs expire, IVs can infiltrate resulting in wastage, and other issues that may result in drug being paid for that cannot later be used (packaging damage that may compromise sterility, etc.) a small mark-up helps to offset that loss.

      Certainly your local oil-change place charges you more for the oil they use than they actually paid for it. (A lot more than a 6% mark-up at mine!) Doctors are small business people, too.

      1. Certainly your local oil-change place charges you more for the oil they use than they actually paid for it.

        My local oil change place charges me, as opposed to some third party, they do the oil change for a fixed price, and they are in stiff competition with other providers over price.

        CMS was planning on cutting the reimbursement they paid to physicians for “physician-administered drugs” (the key concept here) from 106% of average price to 102% plus $16.80.

        That is actually worse, because it means that the profit margin of physicians is potentially much higher. Furthermore, as a consumer of health care, I have no insight into this and physicians don’t compete on price.

        a small mark-up helps to offset that loss

        You’re reasoning like a communist mid-level functionary.

        1. “My local oil change place charges me, as opposed to some third party, they do the oil change for a fixed price, and they are in stiff competition with other providers over price.”

          No doctor wants to charge a third party. Insurance, whether private or Medicare, is a major pain-in-the-ass. But medicare makes it very difficult for doctors to try and operate a cash (no insurance) practice.
          And the oil-change place has a fixed price per each service or bundle of services. The more they do, the more they charge. It is not a flat rate for whatever you need. Why is this a problem only when doctors charge more for doing more?

          “That is actually worse, because it means that the profit margin of physicians is potentially much higher. Furthermore, as a consumer of health care, I have no insight into this and physicians don’t compete on price.”

          Yes, for less expensive medications that is true, as the article states. However, when talking about the thousands of dollars that anti-cancer meds cost, it is a loss.
          Doctors are prohibited by federal law to compete on pricing. Merely sharing of pricing information between two doctors is considered an anti-trust violation. Another major pain-in-the-ass.

          “You’re reasoning like a communist mid-level functionary.”

          Arguing that doctors have a right to make a profit or to, at least, not run their business at a loss, is communist?! Say what?!

  6. Any effort to create savings in the health care system is ultimately an effort to cut someone’s paycheck

    And this right here encapsulates what’s wrong with the system. In a healthy market, cutting costs is a way to reduce prices while still maintaining acceptable profit margins, which lets you beat out there competition, market share, and grow paychecks.

    1. Profits are the price we pay for efficiency.

      That is why efficient is the last word anyone would ever use to describe government.

    2. It will also always be a problem with public projects of any kind–not just in the healthcare market–that you’re weighing cost considerations against people’s lives.

      A substantial portion of the electorate will look at you cross-eyed for questioning the efficacy of spending however much money to save the life of one little girl. How much is that imaginary little girl’s life worth–to voters?

      When that little girl dies because you saved some money, she won’t be imaginary. She’ll have a face, and her face will be all over the news–along with you name.

      And like I said, it isn’t just healthcare. My understanding is that public officials are legally prohibited from choosing contractors based on cost. If the stairs collapse and it’s perceived that it had something to do with picking the least expensive contractor, not only are the voters coming after the people you work for, the American Society of Civil Engineers is on the phone, and they want both your license and your plan stamp, not to mention there may be negligent homicide charges filed . . .

      All because you were worried about costs and profits and other yucky stuff.

      It’s inherent to public policy. The solution to that problem is to limit the government’s involvement to as small a sphere as possible.

  7. encourage health care providers to focus on volume without regard to health outcomes and to rely on more expensive courses of action even when they may not be necessary.

    Allow me to quibble with “without regard to health outcomes”. There is such a thing as malpractice liability, you know. And, simple human decency, which prevents the vast majority (although not all) providers to try to do the best for the patient. And, for those lacking simple human decency, no set of microtechnocratic incentives will make them decent people.

    But, lets ponder a different set of incentives that might steer people to providing less care (less “volume”) and to avoid more expensive courses of treatment even when they might be beneficial. Feel better now?

    Every incentive has a perverse incentive trying to get out. Changing incentives also changes perverse incentives. It is the colossal arrogance and ignorance of Our Masters that they can create a perfect incentive that will achieve exactly what they want, and nothing else.

    1. It is the colossal arrogance and ignorance of Our Masters that they can create a perfect incentive that will achieve exactly what they want, and nothing else.

      Good intentions are magic!

      1. Nice to see you again, sarcamic.

        Hope things are going well with you.

        1. I am well, all things considered. Thanks.

          Hope the squirrels don’t eat this comment.

    2. The hubris to believe that health outcomes are something the provider has absolute control over is staggering at face value. I guess we should just go ahead and shutter every Oncologist practice in the country, what could go wrong?

  8. “On consistent lesson from these failures is that it’s as important to make the politics work is as important as getting the particulars of the policy right. A well-designed policy that is likely to fail politically is not a well-designed policy. “

    Things are the way they are for a reason.

    People who imagine you can change things without negative consequences are simply ignorant of the reasons why things are the way they are.

    No ecologist would be so foolish to think you could change a system that has evolved over decades without any unintended consequences.

  9. “The perverse incentives of many legacy payment models . . . tend to pay for specific services, and thereby encourage health care providers to focus on volume without regard to health outcomes and to rely on more expensive courses of action even when they may not be necessary.

    If you take the reimbursement amounts paid by Medicare and Medicaid on all of the procedures and all of the diagnoses and multiply them by the respective number of times those procedures are performed and the number of days those diagnosed patients are in the hospital, you will find that hospitals lose money on the average Medicare or Medicaid patient.

    However, some codes (procedures and diagnoses) are politically sensitive or especially important. If the general public finds out that poor pregnant women are losing their babies because Medicaid refuses to cover the entire cost of prenatal care, there will be hell to pay. If the general public finds out that ventilator patients on Medicaid are having their ventilators turned off because Medicaid isn’t reimbursing providers enough for that code, there will be political hell to pay.

    Meanwhile, providers are forced to focus on those codes that have the highest reimbursement rates just to break even. Whole provider systems emerge that focus exclusively on those high reimbursement codes. The government tends to slash those reimbursements once a disproportionate share of the reimbursement for that code goes to only one provider . . .

    1. you will find that hospitals lose money on the average Medicare or Medicaid patient.

      This cannot be emphasized enough. Medicaid is a notorious money-loser, with reimbursement often running at less than 50% of actual cost. There’s a reason why a lot of doctors, and more all the time, don’t take Medicaid. Hospitals take it because of their huge fixed costs – even losing money at the margins on Medicaid is better than not bringing in any cash at all.

      Medicare is more of a mixed bag – many hospitals lose money on Medicare. Many don’t. Doctors do make money on Medicare, though. My general impression is that Medicare, for hospitals, runs about breakeven or a little less, industry-wide.

      1. “Hospitals take it because of their huge fixed costs – even losing money at the margins on Medicaid is better than not bringing in any cash at all.

        Also, licensing.

        My understanding is that licensing is tough without a Medicaid contract.

        And you can’t refuse to admit people through the ER because they’re on Medicaid–and the licensing body wouldn’t let us operate an acute care hospital without the ER.

        1. Licensing doesn’t take Medicaid into account, that I’ve ever seen.

          You can’t refuse to admit through the ER, period. Medicaid, no-pay, whatever. Yeah, you need an ER to have an acute care hospital, but you don’t have to have Medicaid to have an ER. There are hospitals that don’t take Medicaid (or Medicare) – I’m aware of a couple of children’s hospitals that don’t, because they are almost entirely endowment-funded and don’t need the regulatory hassle.

        2. Licensing isn’t really impacted by the presence or absence of a Medicaid contract. However, if a physician opts out of Medicare, a lot of other insurers will refuse to contract with them.

          1. If an acute care hospital started refusing service to Medicaid patients on the basis of their inability to cover the costs of care, the regulators would squash them like a bug.

            I’ve seen it happen with my own two eyes.

  10. Nothing new here – fascism does not work.

  11. The political incentives to pay sufficient reimbursements rates for politically incentivized procedures and diagnoses will never go away.

    The problem of central planners using accounting procedures to make qualitative judgements will never go away. (A wheel chair costs less than hip replacement surgery, and the difference in the outcome is a qualitative preference. Are the planners right or wrong to take such qualitative judgments into consideration?)

    The problem of Medicare and Medicaid not covering the full cost of care is another problem that will never go away–covering the full cost of care might double or triple the taxpayer funded costs of the Medicare and Medicaid programs.

    The one thing that could be changed–given the way all those things are and the reasons for it–is to stop requiring private hospitals to provide services to Medicare and Medicaid patients.

  12. It’s the Milton Friedman approach. His position was something like, “I don’t think you should have a Federal Reserve, but if you’re going to ignore that advice, here’s what you should do: . . . ” In my case, I don’t think we should have Medicare and Medicaid, but if you’re going to ignore that advice, you should separate Medicare and Medicaid patients out from the private system. Start with Medicaid. Build free clinics that are 100% financed by the federal government to serve people who don’t have insurance. Build them on a massive scale in our cities.

    However, make it so that private providers no longer need to serve, first, Medicaid and, later, Medicare patients. That is the source of the problem. From a political reality perspective, we already do something like this with VA hospitals. Take away the VA hospitals and put those vets on Medicaid, and they’d get upset about it. We might see the same thing develop if we did the same thing with Medicaid patients and gave them their own clinics. They can’t say we’re leaving them to rot if we’re building them their very own clinics.

    1. The problem with that, of course, is that absolutely no one would operate a clinic that is going to lose money every quarter. The government might be able to, but the cost would still be supported through taxation much as it is now. At least it would be a more direct transfer, I suppose.

      It would never work though. The system would be horribly run, cost an insane amount of money, have year-long waits for an appointment, and in the end it wouldn’t even provide care that’s worth getting. People would accuse the government of putting the poor in ‘death camp hospitals’ and they wouldn’t understand that it’s already what those people were getting in the first place.

      1. “The problem with that, of course, is that absolutely no one would operate a clinic that is going to lose money every quarter.”

        The point is that everyone will want to operate hospitals that aren’t dominated by Medicare and Medicaid patients–which providers aren’t making a profit on either. In order for the profit motive to work, the activity in question needs to be profitable. While treating Medicaid patients won’t be profitable, treating private sector patients suddenly will become so, and that changes everything.

        Last time I checked, some 80% of the hospitals in this country are non-profit–one of the many reasons why blaming the profit motive for the high cost of hospital care is so ridiculous .

      2. “The government might be able to, but the cost would still be supported through taxation much as it is now.”

        The point is that it wouldn’t be distorting the private insurance and provider markets anymore. The reason private insurance is so expensive presently is because private pay patients are effectively paying both for themselves and all the money the providers lose treating Medicare and Medicaid patients. That is the problem.

        Until Medicare and Medicaid patients are no longer treated at private hospitals, the problem is not being addressed and will never be solved.

        There needs to be a private option.

        As far as free Medicaid clinics would work, how much profit do VA hospitals make?

        The correct answer is none. But because veterans aren’t in the private system, they aren’t distorting the private insurance and providers market beyond its ability to function.

  13. Cut everything to the bone! Just not my paycheck man…

  14. Peter – don’t worry.

    The Harvard Kennedy School Healthcare Policy Program has top men to find a solution.

    Discovering solutions and providing leadership for unprecedented problems in healthcare is the mission of the Healthcare Policy Program at Harvard’s Kennedy School of Government. The program draws on the tremendous expertise of Harvard’s schools? Harvard Medical School, Harvard Business School, Harvard Law School, Harvard Chan School of Public Health, the Faculty of Arts and Sciences ? and leverages the role of Boston as a center of research, medical innovation, and far-sighted public-policy. The program has three aims: research, on access, innovation, and value in healthcare; establishing conversations between researchers, government, and industry; and preparing future generations of leaders through educational programs. The Program’s approach is multidisciplinary, engaging people from medicine, law, economics, and the natural sciences, and those with experience in business and government.

    http://tinyurl.com/zger9jx

    So, relax, top men will resolve this issue

  15. It should be noted that the health care profession enjoys high incomes because of almost total government “protection” from possible competition. Doctors enjoy a profitable government enforced legal monopoly over access to medical drugs. So deregulation and repeal of these government provided “protections” should reduce health care costs.

    Naturally the profession will fight this just as they’ve fought everything that might reduce health care costs. However they should be reminded that since the founding of the AMA in 1846, the objective has always been to increase incomes through restriction of the numbers allowed to go to medical school, thus exploiting the laws of supply and demand in their favor. The same is true of prescription laws. A very profitable monopoly the AMA is delighted that the FDR administration handed to them back in 1938.

    Without the power of the federal government behind them, health care professionals would not be able to obtain the high incomes that they do today. And proof if anyone needs reminding, that “protection” always raises price to the consumer.

    1. Government has nothing to do with THIS. The lack of price competition is based solely on consumers having no skin in the game, NO incentive to shop around.

      For nearly 20 years providers have offered discounts as high as 50% for cash, which TOTALLY demolishes your assertion. Ir’s expanded with increased paperwork and time demands. I first saw it in 2000, managing a physician’s LP campaign for the US Senate. He connected me with a number of cash-discount providers in Seattle for my family. His own practice was in a remote town with a lot of Medicare retirees. He accepted cash at a discount but had only three takers.

      My visit to his home was scary. His wife, a VERY soft-spoken “sweet” Christian was wracked with tears, could hardly talk about Medicare paperwork. The wife spent every Saturday doing what their sole staffer could not handle, and REALLY pissed by an average of two SUNDAYS per month.

      So I know how severe the demands are, and the desire to give large discounts for cash. But even the illustrious Cato Institute fucks up. Hugely.

      Their Medicare vouchers increase competition in the WRONG MARKET. Insurance. The relevant market, providers, ALWAYS had competition. but seniors have no skin in the game. So the champion of free markets has the wrong market and apparently forgot skin in the game! Good grief.

      Anti-gummint ranting may excite many of the goobers here, but it has no concept of either markets or the issue. Are you a progressive?

  16. Facebook gives you a great opportunity to earn 98652$ at your home.If you are some intelligent you makemany more Dollars.I am also earning many more, my relatives wondered to see how i settle my Life in few days thank GOD to you for this…You can also make cash i never tell alie you should check this I am sure you shocked to see this amazing offer…I’m Loving it!!!!
    =====================> http://www.homejobs7.com

  17. Abscesses usually need to be incised and drained.

  18. Suderman gets lost again in bureaucracy-speak and misses the point. Why do doctors get paid ANY commission for prescribing drugs? Even 1% is an incentive to prescribe ANY drug, expensive or otherwise. Granted, Plan B is very limited on prescription drugs (mostly Plan D), but the entire exercise is loony tunes. KILL IT.

  19. HAPPY NEW YEARS

    I can see what your saying… Raymond `s article is surprising, last week I bought a top of the range Acura from making $4608 this-past/month and-a little over, $10,000 this past month . with-out any question its the easiest work I’ve ever had . I began this five months/ago and almost straight away startad bringin in minimum $82 per-hr

    +_+_+_+_+_+_+_+_+ http://www.homejobs7.com

  20. HAPPY NEW YEARS

    upto I looked at the paycheck saying $9861 , I accept that my father in law was like they say trully bringing in money in their spare time online. . there best friend haz done this less than 8 months and a short time ago repayed the dept on there appartment and bourt a great Citro?n 2CV . see at this site

    +_+_+_+_+_+_+_+_+ http://www.homejobs7.com

  21. I basically profitcloseto $6k-$8k every month doing an online job. For those of you who arepreparedto do easy at home jobs for 2h-5h each day at your house and earnvaluablepaycheck while doing it…

    +_+_+_+_+_+_+_+_+ http://www.homejobs7.com

  22. My best uncal ex-wife makes Bucks75/hr on the laptop. She has been unemployed for eight months but last month her income with big fat bonus was over Bucks9000 just working on the laptop for a few hours. Read more on this site…..
    =============== http://www.homejobs7.com

Please to post comments

Comments are closed.