Tuesday, February 23, 2010

Easier than voting for tax increases

Just a thought as federal and state policymakers make speeches about putting a lid on the rates charged by private insurers. One of the best kept secrets of health care reimbursement rates is that the federal and state payers, Medicare and Medicaid, do not pay rates that are fully compensatory. This means that private insurers pick up the subsidy for the public plans and include those costs in their rates so that hospitals and doctors can be kept whole.

So . . . the fastest way to hold down insurance rate increases would be for the federal and state governments to pay their fair share. Of course, then someone would have to increase taxes. This takes political courage and a commitment not to hide the full costs of government programs. How much better to use the insurance companies as tax collectors instead.


Anonymous said...

You know, I agree with you that this is getting screwier and screwier; but having the govt's pay their fair share through increasing taxes is also ultimately unsustainable , without controlling costs first - not last. Not that I'm repeating myself or anything. We all have repeated ourselves to exhaustion in the last 2 years or so.......


Anonymous said...

A rule of thumb is that Medicaid pays a third of what anyone else pays at most. Seeing only Medicaid patients is a sure way to go out of business.

Engineer on Medicare said...

The solution will not be found in re-shuffling the dollars among those clawing for their piece of the action. The solution will come from transformation of the system.

Paul; if you could break or repeal all of the rules and relationships and reconstruct the system as you believe it should be, what would be your objectives and what would you do to achieve those objectives?

How would you apply lean principles to the new health care system? How would consumers be involved in the system to increase value and reduce cost? How would involvement of the primary care physicians be changed to actually reduce the cost of care, and if they get paid more, who would receive a smaller piece of the pie?

And finally, what would be the effect of your proposed system on the cost and delivery of health care in the US? If it will reduce cost, who will lose a piece of their income? If it will cost more, who will pay? And if someone is going to receive less health care, who will that be and what will be the effect on those who receive less?

Barry Carol said...

In theory, the concepts of Medicare and Medicaid paying rates high enough to cover hospital and physician costs and developing strategies, including different payment approaches, intended to bend the medical cost growth curve are not mutually exclusive.

One significant problem for hospitals is quantifying costs. While Paul or his financial team may be able to tell us what BIDMC’s annual costs are at the hospital level, quantifying them at the department level or the individual procedure level is difficult and complex. A few issues include the following: (1) How much does it cost to perform medical research and should those costs, including associated overhead, be funded solely by research grants, and, perhaps, philanthropy? (2) How much does it cost a teaching hospital to perform its education function and should Medicare fund those costs with a separate payment stream as opposed to building it into the rates it pays teaching hospitals for each procedure or DRG code? (3) Hospitals have lots of overhead that serve the entire facility as opposed to specific departments. Allocating those costs to individual departments is a highly subjective process which can differ materially from one organization to another. (4) Hospitals have very high fixed costs as do hotels, cruise lines, airlines and other very capital intensive businesses. Differences in actual and/or assumed targeted occupancy rates can significantly affect costs at the department level. (5) Who gets credit for revenue? If a patient is admitted to the hospital through the ED, to what extent, if any, should the ED be credited with some of the revenue? (6) If an ED patient is sent down the hall for imaging, how should the revenue be allocated between the ED and the radiology department? (7) How much does it cost to operate an OR per hour and does it matter what type of operation is being performed? These are just a few of many potential issues that could be raised.

For doctors in private practice, the cost issue should be easier to deal with. Practice expenses for staff, office rent, equipment, supplies, malpractice insurance, etc. should be fairly easy to quantify. In essence, they are selling their time, knowledge and expertise. They should bill at an appropriate hourly rate like lawyers. Patients would, of course, pay extra for drugs and testing by independent labs and imaging facilities.

Liz said...

I read something earlier today (and I can't remember where -- just that it had to do with states drowning in Medicaid payments) that opined that if consumers had to pay more of actual costs, they'd make better decisions. We have a $20 co-pay, which means I could take a kid in to see if that sore throat is strep. If I paid the full cost, I'd wait a day. (This is a for-instance -- no strep in our house for a bunch of years, thank God.) It's all very complicated and I don't pretend to have the answers, just questions. Then I read scary things, like "Hip Replacement in Kettering General Hospital" and I hope we never get a health care system like that in the UK. The author, David Sharman, had quite the ordeal, with what he calls an unqualified trainee who carried out his operation without supervision, confusing consent forms, MRSA infection, etc. On top of all that, he had extreme difficulty in obtaining the facts of his own case, both through the NHS and the legal system.

Seems like medicare care is broken lots of places, doesn't it?

Jethro said...

Al this talk of different reimbursement rates, who pays how much when, containing costs, blah blah, blah. Think deep about this - How or when is it going to change ? Who is going to change it ?

The only logical answer is either truly government run with all doctors paid the same, and everyone covered - or - the individual needs to take total control. Whether it is employers or individuals that pay into an HSA type account, it is the individual that has to ask what the costs are and have a stake in the financial outcome. It has to be Their outcome. It can't be - "well I pay $500 month for healthcare and I am going to use $1,000.

Charlie Baker talks about transparency and here is my small story: I go to foot/ankle Dr. because my heel pain is unbearable. He says you just need some Physical Therapy, it is just your Achilles and you need ultrasound and then stretching.
I go to PT practice and sign the form that says I will pay for treatment (without knowing what the treatment costs!) haven't been to Dr. for 2 years so don't have any clue about my new deductible, copay, or whatever.
First treatment is ultrasound, deep tissue massage = 1/2 hour; next 1/2 hour is stretching on my own with no supervision. I feel great. Go home, wife says that is great, but what is this going to costs us ? 2nd visit I ask therapist what is this going to cost, she says nothing, insurance approved 20 visits so you are all set. After 10 visits I get bill for $650. Seems Harvard Pilgram only pays $65 and visit is one hour at $130. I say to PT office, what is with this ? they say too bad. I say, if I knew that the first 1/2 hour was all Insurance paid for, I would have skipped the stretching part here at the office and paying you $65 to use your carpet. I explain that I asked the PT what it would cost, they say too bad, she doesn't know. But she said she did. I call HP and they say too bad, you should have called when you got your bill and they could have told me what % they would pay (but only after bill was submitted by PT to HP) I said I got the bill after my 10th visit, too bad, so sad....

Moral of the story - patients (me) are not paying attention to what things cost - so no one cares...

Insurance companies should be there to protect for the unforeseen, not the routine. I buy car insurance for crashes, not for maintenance... Patient -vs- medical provider. No body in the middle.......

Keith said...

I am often befuddled by this argument of hospitals not being reimbursed adequately by Medicaid and Medicare given the enormous amount of building of glistening medical palaces I have witnessed in the past decade. If you need to expend huge sums in having the newest facility and the fanciest equipment, then of course your lower payors may not cover your cost since you have a bigger mortgage to pay each month. And this does not even take into account the amzazing runnup in the costs of hospital CEOs such as yourself! It seems abundantly clear to me that we cannot continue on this path of accepting for every new drug regardless of its efficacy and every fancy new machine despite the lack of rigorous proof as to its superiority over the old machine. Is the brand new 16 slice scanner really that much better than the old one, or is it just a marketing point to claim we have the newest whiz bang equipment?

Hospitals seemingly guard the actual costs of delivering a given service as a corporate secret that does not allow clear vetting of this argument since we know the payment side but not the actual cost side.

Clearly there is cost shifting, but as your own Attorney General in Mass. has recently shown, it is the larger medical players that are leveraging their size and name to garner the best payments from commercial insurers. I doubt that the major Medicaid providers/hospitals in your state are the ones that are negotiating the best deals with insurers, although they clearly deserve more than the medical behemouths that are content on chasing the well insured patient with fancier facilities and concierge services.

Anonymous said...

Transferred from Facebook:

Michael: My experience with hospitals is that private insurance isn't always fully compensatory, either, based on the bills I've received. How different is the rate paid by Medicare/Medicaid, various private insurance companies, and an uninsured individual off the street?

And how is the government paying more money going to alter the structure of companies? Isn't that naive? Wouldn't forcing insurance companies to pay out more than the current $0.78 for every dollar of incoming premiums have a similar effect without raising taxes?

Brenda: I, for one, am in favor of raising taxes. Upper tax rates are at historical lows. We can't fix our infrastructure, fix our health care system, fight two wars, and still pay our bills. During the 1950s, when we built the interstate highway system and the country was generally prosperous, the top tax rate was 91%!! I'm not advocating that, but even a small increase would make a huge difference. It is no mystery that our infrastructure and deficit problems have spiraled since top tax rates were cut in the early 1980s. I believe it is called "starving the beast..."

Beverly: Stupid question: why do private insurance companies pay more than Medicare? Wouldn't it be to their advantage to simply use Medicare as an excuse to pay the same? Why do they put up with being cost-shifted to?

Amit: We have a fundamental problems. By simply raising the taxes we will NOT solve the isse. We really need to re-tune our expectations. In case of health care - we want everything to be delivered to us. Doctors are playing defensive medicine... We can reduce (in my opinion) our costs if we were told by our doctors that YOU do not need all those tests and yes you need to make changes in your lifestyle. We have gotten used to getting what we want and when we want - even if it is not medically needed.....

Anonymous said...

Engineer on Medicare, you are a person after my own heart. I am a Lean Facilitator in a hospital and I agree completely that nothing short of a total transformation is needed in both the delivery of care and coverage. The waste I see day in and day out is astounding (preventable infections, wrong/no information, lack of standardization where needed, excess inventory, organizational silos resulting in bickering as opposed to delivering value to patients, etc.) but so many healthcare professionals don't see the need for change/improvement. Complacency/status quo will reign supreme until there is a real crisis - AFTER we've had some real "pain." Until then I'm afraid gridlock on this issue will continue.

Anonymous said...


What you say is true, but the question of how to allocate joint and common costs is not unique to hospitals.

However you allocate those costs, if one group of payers does not cover its reasonable allocation, others will have to if you want to ensure the viability of the hospital and its physicians.


Some good points about the medical arms race. Who would you like to make those choices?

Anonymous said...

Transferred from Facebook:

Amy: I see my health care going down the drain if your plan is implemented. How do they do it in countries with socialized medicine?

Beverly: Amy - if whose plan is implemented?

Amy: What Paul is saying....if Medicare has to cough up full cost, my guess is they will cover a lot less. That said, I think they need a better plan to cover the costs incurred. That's why I am asking how countries with successful socialized plans make it work?

Beverly: Amy; others can answer your question more fully than I, but the short answer is those countries control costs themselves. Doctors make much less, the costs of drugs are controlled, and in some countries such as the UK care is specifically rationed by a Board which approves/disapproves new treatments. Costs are way, way out of control in this country. (ps I am a retired MD so have seen the system internally.....)

Me: They have higher tax rates than we do.

Anonymous said...

More from Facebook:

Amy: Thank you Paul! I know they get health care, get paid for going to college, which is free and 'mandatory' maternity leave, it might not be so bad. It seems like they are getting their money worth. Would we? could we?

Anonymous said...

Beverly: I respectfully submit the theory that even their higher tax rates could not cover medicine as it is practiced in this country.

Engineer on Medicare said...

Paul Levy said... "I respectfully submit the theory that even their higher tax rates could not cover medicine as it is practiced in this country."

If we used a Value Added Tax on both goods and services to pay for all health care then health insurance costs would not be a factor in decisions to add employees. Furthermore, VAT is usually refunded on exports so it would benefit balance of trade.

Paul; how would you change the practice of medicine in this country if you were appointed czar with total authority to make the change, and how would your system affect cost, quality, and availability of health care?

Anonymous said...

More from Facebook:

Me: Right, Beverly. For one thing, they actually invest in primary care, obviating the need for our level of specialty care. Universal accessible electronic medical records are also more prevalent, helping care coordination. For another, there are limits in many countries on more advanced care, either absolute limits, or limits by "congestion management", i.e., slowing down the availability of services.

And then there are some differences in accounting. For example, does the free medical school tuition provided in those countries show up as a portion of their national health care cost or in their education budget. Here, those costs essentially show up as a component of MD salaries. And in countries like Italy, where the admission requirements for medical school are more lax and tuition is free, there is a surfeit of doctors, bidding down the salaries of that profession.

Tom: Someone needs to define what " fully compensatory "really is...It's a bit confusing to me that a "business" would only take a percentage of the real cost of service from the Medi system. Are you guys posting losses every year? How do you keep on building all these new facilities (post Bernie Madoff)?

Michael: Paul, I object to the statement "They have higher tax rates than we do" as an explanation for how other countries afford universal health care. Despite the fact that most Americans receive no government health care benefits, the US government still spends more (per capita) on health care than any other sizable country (no offense, Norway and Luxembourg):


Me: Michael, pls see other distinctions above. Tom, take a look a who is building anything. Most of us do not earn a sufficient return to renew and replace capital equipment. We do not have a choice about accepting lower-than-cost payments from the state and federal gov't. We are required to take those patients at the rates provided by the gov't. This is not optional in MA.

Anonymous said...


I didn't say that. Beverly did, although i agree with her.

I've given my ideas over the last several months on this blog. Too hard to summarize here . . .