Last week I posted on the perils of evaluating hospitals on the basis of ‘discounts’, noting that some hospitals’ charge to cost ratios are so high that it is relatively easy for them to offer large discounts – it’s the old ‘raise the price by 50% and offer a 30% discount to make them think they’re getting a deal’ technique.
(note – I got a call from and spoke with Tenet’s Chief Managed Care Officer about the post; he’s going to send me material supporting his claim that Tenet (the subject of last week’s post) has reformed its ways. Will post on this if/when I hear more)
Hospitals have adopted this policy in part due to low Medicare and Medicaid reimbursement and the rising number of uninsured (and in part to suck more money out of insurers’ coffers). Hospital execs rationalize their pricing by noting (accurately) that Federal law requires them to treat everyone, regardless of their insurance status, so treat they do. (It’s called EMTALA and is discussed here). Medicaid is a notoriously lousy payer, and Medicare, while better, doesn’t do much to offset the costs of indigent care and underpayments from Medicaid. So, the hospital charges private payers a lot more, a policy known as cost-shifting (and one not only well-documented but acknowledged by many hospital execs).
Part of the reason Tenet jacked up charges ten years ago was to game the Medicare reimbursement system. By inflating charges, more of their patients became ‘outliers’, and therefore Tenet got paid more – even though the patients’ severity wasn’t materially different. Tenet paid a $900 million (!!) fine for this behavior, and by several accounts has been working to clean up its act. The Tenet case shows why it is all but impossible for states to ‘reform’ health care. About a third of all medical care is paid for by the Feds (states contribute to Medicaid, but reimbursement is largely driven by CMS). CMS’ reimbursement methodologies are also widely used by commercial payers, and when the Feds change policies, the impact moves thru the health care community like a tidal wave, swamping some businesses, flooding others, and occasionally lifting others to high ground.
Refusing to pay for never-ever events and off-label use of Actiq, changing hospital DRGs, pharmaceutical pricing methodologies, changes in physician reimbursement – all are recent moves by CMS and related entities that have sent shock waves through group health, individual insurance, workers comp, pharmacy, hospital charge policies, and health plan medical policies. The effect is no different on state-specific reform policies.
Any state initiative will find itself trumped by CMS. And CMS may well be forced to make drastic changes, changes that up until a few weeks ago were unthinkable. We are heading for a deep economic recession/decline/really bad time, one that will force Congress to think the once-unthinkable – make major changes to entitlement programs. As Maggie Mahar pointed out yesterday,
“Make no mistake: we’re heading into a long and deep recession. And it will effect everyone. Both blue collar and white collar unemployment will soar… (Today, speaking at Harvard, Bill Gates predicted that unemployment will hit 9 percent. Whatever you may think about Gates, he is good with numbers.) Not only will people lose their jobs, they will lose their employer based insurance…”
Maggie knows of what she speaks – she covered the financial world for Barron’s for years and wrote a best-selling book about the stock market boom.
What does this mean for you?
We’re in a very deep financial hole, one that will force major changes in health care and health insurance. There’s a decent chance that change will begin with reform of the insurance markets on a Federal level. And don’t be surprised if next on the table is big changes in Medicare and Medicaid reimbursement, changes that will reshape the health care industry in ways unthinkable a month ago.
Oct
14
