U.S. Department of Health and Human Services, Office of Inspector General, December 2019

The risk adjustment program is an important Medicare Advantage (MA) payment mechanism. It levels the playing field for MA organizations (MAOs) that enroll sicker beneficiaries who need a more costly level of care. This helps to ensure that sicker beneficiaries have continued access to MA plans. Chart reviews can be a tool to improve the accuracy of risk-adjusted payments by allowing MAOs to add and delete diagnoses in the encounter data based on reviews of patients’ records. However, chart reviews—particularly those not linked to service records—may provide MAOs opportunities to circumvent the Centers for Medicare & Medicaid Services (CMS) face-to-face requirement and inflate risk-adjusted payments inappropriately.

Why OIG Did This Review

We undertook this study because of concerns that MAOs may use chart reviews to increase risk-adjusted payments inappropriately. Unsupported risk-adjusted payments are a major driver of improper payments in the MA program, which provided coverage to 21 million beneficiaries in 2018 at a cost of $210 billion.

CMS risk-adjusts payments by using beneficiaries’ diagnoses to pay higher capitated payments to MAOs for sicker beneficiaries―which may create financial incentives for MAOs to make beneficiaries appear as sick as possible. MAOs report these diagnoses via CMS’s MA encounter data system and RAPS based on services and chart reviews (i.e., MAO’s reviews of a beneficiary’s medical record to identify diagnoses that a provider did not submit or submitted in error).

To be eligible for risk adjustment, a diagnosis must be documented in a medical record as a result of a face-to-face visit. Although CMS requires MAOs to identify chart reviews in the encounter data, CMS does not require MAOs to link these chart reviews to a specific service associated with the diagnoses. This may provide MAOs opportunities to circumvent CMS’s face-to-face requirement and inflate risk-adjusted payments inappropriately.

What OIG Found

Our findings highlight potential issues about the extent to which chart reviews are leveraged by MAOs and overseen by CMS. Based on our analysis of MA encounter data, we found that:

• MAOs almost always used chart reviews as a tool to add, rather than to delete, diagnoses—over 99 percent of chart reviews in our review added diagnoses.
• Diagnoses that MAOs reported only on chart reviews—and not on any service records—resulted in an estimated $6.7 billion in risk-adjusted payments for 2017.
• CMS based an estimated $2.7 billion in risk-adjusted payments on chart review diagnoses that MAOs did not link to a specific service provided to the beneficiary―much less a face-to-face visit.
• Although limited to a small number of beneficiaries, almost half of MAOs reviewed had payments from unlinked chart reviews where there was not a single record of a service being provided to the beneficiary in all of 2016.

These findings raise three types of potential concerns. First, there may be a data integrity concern that MAOs are not submitting all service records as required. Second, there may be a payment integrity concern if diagnoses are inaccurate or unsupported— making the associated risk-adjusted payments inappropriate. Third, there may be a quality-of-care concern that beneficiaries are not receiving needed services for potentially serious diagnoses listed on chart reviews, but with no service records.

Despite the potential for MAOs to misuse chart reviews, CMS has not reviewed the financial impact of chart reviews in the encounter data on risk-adjusted payments. CMS has not assessed variation across MAOs in their chart review submissions. In addition, CMS has not analyzed the quality of care provided to beneficiaries who may have serious health conditions and may not be receiving needed services. Finally, CMS has not yet performed audits that validate diagnoses reported on chart reviews in the encounter data against beneficiaries’ medical records. CMS reported that it plans to begin audits that would include such chart reviews later this year.

What OIG Recommends

We recommend that CMS (1) provide targeted oversight of MAOs that had risk-adjusted payments resulting from unlinked chart reviews for beneficiaries who had no service records in the 2016 encounter data, (2) conduct audits that validate diagnoses reported on chart reviews in the MA encounter data, and (3) reassess the risks and benefits of allowing chart reviews that are not linked to service records to be used as sources of diagnoses for risk adjustment. CMS concurred with these recommendations.

Findings

Less than 1 percent of chart reviews deleted risk-adjustment-eligible diagnoses from the MA encounter data for payment year 2017

Diagnoses that MAOs reported only on chart reviews―and not on any service records―resulted in an estimated $6.7 billion in risk-adjusted payments for 2017

CMS based an estimated $2.7 billion in risk-adjusted payments on chart review diagnoses that MAOs did not link to any service provided to the beneficiary

Although limited to a small number of beneficiaries, almost half of MAOs reviewed had payments from unlinked chart reviews where there was not a single record of a service being provided to the beneficiary in all of 2016

CMS has not validated diagnoses or reviewed the financial impact of diagnoses reported on chart reviews in the encounter data

Conclusion

The risk adjustment program is an important mechanism for accurately reimbursing MAOs based on the differences in health status across beneficiaries. It levels the playing field for MA organizations (MAOs) that enroll sicker beneficiaries who need a more costly level of care. This helps to ensure that sicker beneficiaries have continued access to MA plans. Chart reviews can be a tool to improve the accuracy of risk-adjusted payments by allowing MAOs to add and delete diagnoses in the encounter data based on reviews of patients’ records. We found that MAOs’ chart reviews almost always resulted in added diagnoses (over 99 percent of chart reviews), and almost never deleted diagnoses (less than 1 percent).

CMS uses the diagnoses from chart reviews to determine risk-adjusted payments―as long as the diagnoses are based on a face-to-face visit between beneficiaries and their providers. Diagnoses that MAOs reported only on chart reviews—and not on any service records—resulted in an estimated $6.7 billion in risk-adjusted payments for 2017.

Of the $6.7 billion in risk-adjusted payments, CMS based an estimated $2.7 billion on diagnoses that MAOs did not link to any service provided to the beneficiary in 2016. Allowing unlinked chart reviews provides opportunities for MAOs to circumvent CMS’ face-to-face requirement and inflate risk-adjusted payments inappropriately. Although limited to a small number of beneficiaries, almost half of MAOs reviewed had risk-adjusted payments from unlinked chart review for beneficiaries where there was not a single record of any service being provided to them in all of 2016. For beneficiaries with unlinked chart reviews, and no records of services in all of 2016, it is not at all clear what services were used to generate diagnoses added on these chart reviews.

These findings raise three types of potential concerns. First, there may be a data integrity concern that MAOs are not submitting all service records as required. Second, there may be a payment integrity concern if diagnoses are inaccurate or unsupported—making the associated risk-adjusted payments inappropriate. Third, there may be a quality of care concern that beneficiaries are not receiving needed services for potentially serious diagnoses listed on chart reviews but no service records. Despite the potential for MAOs to misuse chart reviews, CMS has not yet validated the diagnoses reported on chart reviews and has not reviewed the financial impact of chart reviews on risk-adjusted payments.

We understand that MAOs need a mechanism to add diagnoses to the encounter data that providers have neglected to include in the service information submitted to the MAO. However, in the absence of monitoring and oversight by CMS, our findings raise questions about the vulnerabilities associated with using chart reviews, particularly unlinked chart reviews, as this mechanism.

https://oig.hhs.gov…

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Comment:

By Don McCanne, M.D.

We have long complained about the devious methods that the private Medicare Advantage plans use to cheat taxpayers. Originally they selectively marketed their plans to healthy populations while being paid at rates representing average health care costs for Medicare beneficiaries. Since the healthier 80 percent of the population uses only 20 percent of health care, this strategy of marketing to the healthy has been quite profitable for the Medicare Advantage plans.

To counter this fraud, the government introduced risk adjustment. The insurers that included individuals with greater costs would be paid at higher rates for that less healthy population. Today’s report from CMS’s Inspector General confirms that the insurers have found another way to game the system. They began to use chart reviews to “correct” the diagnoses that were to be submitted to CMS – diagnoses that would determine whether they were entitled to higher payments based on the patients’ risk evaluations. Over 99 percent of the corrections added new diagnoses whereas less than 1 percent deleted risk-adjustment-eligible diagnoses. These additional diagnoses based on diagnoses from chart reviews that were not linked to records of services actually rendered resulted in a $6.7 billion windfall for the private Medicare Advantage plans. Thus the plans have been successful in continuing to enroll the large, relatively healthier portion of the Medicare population while reporting them as sick enough to merit additional risk adjustment payments.

From the OIG report: “Of the 137 parent organizations reviewed, 10 parent organizations drove 79 percent of the risk-adjusted payments from chart reviews. These 10 parent organizations enrolled 70 percent of MA beneficiaries.” Thus this has occurred on a massive scale, perpetrated by the big boys. Although the report does not list these organizations, it is well known which companies have enrolled 70 percent of the Medicare Advantage beneficiaries.

Appendix D of the OIG report is a letter from CMS administrator Seema Verma indicating general agreement with the OIG recommendations, when it is difficult to come to any other conclusion than CMS has been complicit with the private insurers in perpetrating this fraud (this is my gut feeling and not a legal opinion). She repeatedly condemns the concept of Medicare for All while celebrating the private Medicare Advantage plans.

Yesterday’s Quote of the Day discussed President Trump’s Executive Order designed to further privatize Medicare. The administration is attempting to shift greater control of the Medicare program to the Medicare Advantage plans with transitional recommendations that would move the patients in the traditional fee-for-service Medicare program into the marketplace, presumably eventually placing the private plans in complete control of the entire Medicare program. Can you imagine how that would bend the concept of Medicare for All? Put the crooks in charge and hit the taxpayers even harder.

Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.

By Donald J. Trump
The White House, October 3, 2019

(Excerpts)

By the authority vested in me as President by the Constitution and the laws of the United States of America, it is hereby ordered as follows:

Section 1. Purpose. The proposed Medicare for All Act of 2019, as introduced in the Senate (“Medicare for All”) would destroy our current Medicare program, which enables our Nation’s seniors and other vulnerable Americans to receive affordable, high-quality care from providers of their choice. Rather than upend Medicare as we know it, my Administration will protect and improve it.

“Medicare for All” would not only hurt America’s seniors, it would also eliminate health choices for all Americans. Instead of picking the health insurance that best meets their needs, Americans would generally be subject to a single, Government-run system. Private insurance for traditional health services, upon which millions of Americans depend, would be prohibited. States would be hindered from offering the types of insurance that work best for their citizens. The Secretary of Health and Human Services (Secretary) would have the authority to control and approve health expenditures; such a system could create, among other problems, delays for patients in receiving needed care. To pay for this system, the Federal Government would compel Americans to pay more in taxes. No one — neither seniors nor any American — would have the same options to choose their health coverage as they do now.

Instead of ending the current Medicare program and eliminating health choices for all Americans, my Administration will continue to protect and improve Medicare by building on those aspects of the program that work well, including the market-based approaches in the current system. The MA component, for example, delivers efficient and value-based care through choice and private competition, and has improved aspects of the Medicare program that previously failed seniors.

Sec. 2. Policy. It is the policy of the United States to protect and improve the Medicare program by enhancing its fiscal sustainability through alternative payment methodologies that link payment to value, increase choice, and lower regulatory burdens imposed upon providers.

Sec. 3. Providing More Plan Choices to Seniors.

(a) Within 1 year of the date of this order, the Secretary shall propose a regulation and implement other administrative actions to enable the Medicare program to provide beneficiaries with more diverse and affordable plan choices. The proposed actions shall:

(i) encourage innovative MA benefit structures and plan designs, including through changes in regulations and guidance that reduce barriers to obtaining Medicare Medical Savings Accounts and that promote innovations in supplemental benefits and telehealth services;

(ii) include a payment model that adjusts supplemental MA benefits to allow Medicare beneficiaries to share more directly in the savings from the program, including through cash or monetary rebates, thus creating more incentives to seek high-value care; and

(iii) ensure that, to the extent permitted by law, FFS Medicare is not advantaged or promoted over MA with respect to its administration.

(b) The Secretary, in consultation with the Chairman of the Council of Economic Advisers, shall submit to the President, through the Assistants to the President for Domestic and Economic Policy, a report within 180 days from the date of this order that identifies approaches to modify Medicare FFS payments to more closely reflect the prices paid for services in MA and the commercial insurance market, to encourage more robust price competition, and otherwise to inject market pricing into Medicare FFS reimbursement.

Sec. 5. Enabling Providers to Spend More Time with Patients. Within 1 year of the date of this order, the Secretary shall propose reforms to the Medicare program to enable providers to spend more time with patients by:

(c) conducting a comprehensive review of regulatory policies that create disparities in reimbursement between physicians and non-physician practitioners and proposing a regulation that would, to the extent allowed by law, ensure that items and services provided by clinicians, including physicians, physician assistants, and nurse practitioners, are appropriately reimbursed in accordance with the work performed rather than the clinician’s occupation.

Sec. 6. Encouraging Innovation for Patients. Within 1 year of the date of this order, the Secretary shall propose regulatory and sub-regulatory changes to the Medicare program to encourage innovation for patients by:

(b) modifying the Value-Based Insurance Design payment model to remove any disincentives for MA plans to cover items and services that make use of new technologies that are not covered by FFS Medicare when those items and services can save money and improve the quality of care.

Sec. 9.

(b) The Secretary shall study and, within 180 days of the date of this order, recommend approaches to transition toward true market-based pricing in the FFS Medicare program. The Secretary shall submit the results of this study to the President through the Assistants to the President for Domestic and Economic Policy. Approaches studied shall include:

(i) shared savings and competitive bidding in FFS Medicare;

(ii) use of MA-negotiated rates to set FFS Medicare rates; and

(iii) novel approaches to information development and sharing that may enable markets to lower cost and improve quality for FFS Medicare beneficiaries.

Sec. 11.

(b) Within 1 year of the date of this order, the Secretary shall identify and remove unnecessary barriers to private contracts that allow Medicare beneficiaries to obtain the care of their choice and facilitate the development of market-driven prices.

https://www.whitehouse.gov…

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Moving To A Market-Driven Medicare Program

By Brian J. Miller and Gail R. Wilensky
Health Affairs Blog, December 5, 2019

(Excerpts)

As the debates amongst Democratic presidential candidates over single-payer health care reaches new heights, the Trump administration recently responded with its latest executive order targeting health care, laying out the administration’s vision for the future of the Medicare program.

Recent administration efforts have tracked traditional market-oriented principles, with previous White House policy positions and executive orders focused on choice and competition. In this post, we review the latest executive order addressing the Medicare program, how agencies could assist with its implementation, and the political challenges it brings.

Medicare Advantage: Market-Driven Medicare

Medicare Advantage (MA), the market-driven alternative to the traditional fee-for-services Medicare program, plays a central role in the executive order.

The executive order proposes further flexibility in benefits and plan design: Medicare Medical Savings Accounts (MSA), supplemental benefits, and telehealth services. Politically popular with many conservatives, MSAs have had little uptake since their introduction.

Previous CMS efforts to broaden use of telehealth services could be expanded in multiple ways, most notably by integrating availability of telehealth services into star ratings and network adequacy requirements—beneficiaries should be able to choose not only when but how they receive medical services.

Medicare Advantage And Traditional Medicare: Wrestling For Dominance

A longstanding complaint from health plans is the differential treatment of private plans as compared to fee-for-service Medicare. The executive order proposes leveling this playing field with multiple opportunities for positive change in not only program administration but also in rulemaking and legislative activity.

To capitalize on the budgetary and care coordination benefits of MA for both beneficiaries and government, CMS could modify the enrollment process to promote auto-enrollment into high-performing MA plans. This would likely require additional legislative authority and could prompt objections by progressive Democrats. However, it would help shift the balance from an open-ended financial commitment—fee-for-service Medicare—to a risk-adjusted capitated-plan product—MA—thus facilitating long-term budgetary control over the Medicare program.

Further changes in payment rates are also proposed, which is likely to bring vigorous, or even rancorous debate. Increasing Medicare fee-for-service rates to commercial rates as specified in the executive order would likely be financially unsustainable, stressing the already strained financial footing of the Medicare program—the latest Medicare Trustees Report estimating depletion of the Hospital Insurance Trust in 2026.

Further adjustments of network adequacy requirements for telehealth services would allow MA plans to better serve rural and underserved markets. This change would require CMS—and the medical community as a whole—to better delineate which services can be safely and effectively delivered remotely, in addition to creating guidelines for when a physical exam is required. While a small part of the executive order, this could promote significant changes in both documentation and medical practice, with the potential to reinvigorate the practice of clinical medicine.

Health Plan Administration: Unsexy And Important

For much of health plan administration, the devil is in the details.

The order directs the Department of Health and Human Services to share information regarding practice patterns with providers and to provide beneficiaries with cost and quality data. The former would provide additional and potentially useful information to both practitioners and practice administrators about cost and quality based upon existing quality metrics, albeit additional work regarding disease and episode-based outpatient groups would be required to make the information clinically and administratively meaningful. Research shows that consumer interest in “report cards” is growing and that consumers can choose high-value care when cost and quality data are presented together, suggesting that health plans—including CMS—have an opportunity to help steer consumers to use cost and quality information to make better decisions.

Finally, while sensible, aspects of the executive order targeting supervision requirements for non-physician providers would require modification of state laws regarding scope of practice. Equalization of payment rates for non-physicians (currently at 85 percent of physician rates) would increase costs, and likely require both rulemaking and legislative change.

Thoughts For Policy Makers

The Medicare executive order represents a vision for a market-based Medicare program. With more than half a century of price setting in Medicare fee-for-service, we have failed to control health care expenditure growth. Now is the time to try something different.

https://www.healthaffairs.org…

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Comment:

By Don McCanne, M.D.

Congress and both Republican and Democratic administrations have periodically introduced policies that benefit the private Medicare Advantage (MA) plans while neglecting much needed reform in the traditional fee-for-service Medicare program. The goal has been to convert Medicare into a private, market-based program by giving the private MA plans a competitive advantage over traditional Medicare. The current Presidential Executive Order seems to be an effort to abandon, for the present, the goal of “shrinking Medicare and drowning it in a bathtub” to one of converting traditional Medicare into a market-based program which then would have to compete with the private plans, or perhaps be assimilated by them.

The Executive Order calls for specific actions to move the process forward. But this is not new; it has been going on for decades.

As an example, Gail Wilensky – coauthor of the Health Affairs article above – has been fighting for years to prohibit supplemental Medigap plans from covering the deductibles under Medicare. A point that is dear to the pro-market advocates in health care is that people who need medical care must feel the pain of “having skin in the game” by requiring out-of-pocket payment as a condition of receiving health care services. Wilensky won. Next month insurers will be prohibited from issuing new Medigap plans that protect beneficiaries from exposure to deductibles (grandfathered plans will be phased out by attrition).

Another example is that each year Democratic legislators have joined their Republican colleagues in pressuring CMS to ensure that the private MA plans receive very generous taxpayer contributions which has resulted in their stellar performance on Wall Street. (Do campaign contributions constitute a quid pro quo?)

As Miller and Wilensky state, “The Medicare executive order represents a vision for a market-based Medicare program.” The transformation is almost complete. Our vision of health care justice for all through a single payer model of reform will be much more difficult to achieve if we not only have to enact and implement an improved Medicare for all but we also have to drain the swamp created by the medical-industrial complex and their market-based approach to health care. Keep in mind that the insurers and the venture capitalists and their brethren are taking over and becoming the health care delivery system. If you check the smoke signals, they are already well positioned to dictate the terms of reform.

Our inertia has been quite effective in letting us get to this appalling state of reform. Miller and Wilensky state, “Now is the time to try something different.” Well, yes. The single payer model of an improved Medicare for All. But continued inertia won’t get us there.

Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.

By Jessie Hellmann
The Hill, December 10, 2019

“Medicare for All” supporters scored a victory Tuesday with a long-awaited hearing in one of the House’s most powerful committees, putting more focus on the health care proposal that has divided the field of 2020 Democratic presidential candidates.

The Energy and Commerce Committee discussed the single-payer health plan backed by White House hopefuls Sens. Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) after a sustained campaign led by Rep. Pramila Jayapal (D-Wash.), a co-chairwoman of the Congressional Progressive Caucus, and other members of the party’s liberal wing.

“Our movement is alive and well,” she told The Hill on Tuesday. “We’re just continuing to bring more and more people on board, and we’ll have more hearings, but these are substantive discussions, which is what really excites me.”

Medicare for All previously received hearings in the Ways and Means, Education and Labor, and Budget committees.

Jayapal’s Medicare for All bill has the most co-sponsors — 119, more than half of the Democratic caucus — of the measures debated.

Jayapal said she and other backers are working to shore up support, and she expects to have two more hearings in the House next year.

https://thehill.com…

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“Proposals to Achieve Universal Health Care Coverage”

Subcommittee on Health of the Committee on Energy and Commerce, December 10, 2019

Video of Hearing:
https://energycommerce.house.gov…

Testimony of the Honorable Pramila Jayapal (D-WA):
https://energycommerce.house.gov…

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The Seventh Annual Global Health Economics Colloquium

UCSF-UC Berkeley-Stanford Colloquium – Medicare-for-All: How to Do It Right

Date and Time:
Friday, January 24, 2020
8:30 AM – 5:00 PM PST

Location:
International House
2299 Piedmont Avenue
Berkeley, CA 94720

About this Event:

Single payer / Medicare-for-All is newly on the national political agenda. Two leading Democratic presidential candidates support it. Yet transforming how we pay for health care is a major task. If Medicare-for-All is adopted, how can we best design it to achieve universal coverage, high quality care, and affordability?

In this colloquium, we gather leaders in Medicare-for-All design from the U.S. along with international health system experts. The discussion will review current plans in Congress and from candidates, and will highlight the best approaches and trickiest issues in implementing Medicare-for-All.

Speakers Include:

• Rep. Pramila Jayapal (D – WA), Chief Sponsor, HR 1384 Medicare for All Act 2019
• Emmanuel Saez PhD, Professor of Economics, Director, Center for Equitable Growth, U.C. Berkeley
• Jeffrey D. Sachs PhD, University Professor and Director of the Center for Sustainable Development at Columbia University (by video).
• David U. Himmelstein MD and Stephanie J. Woolhandler MD, Distinguished Professors, City University of New York at Hunter College; Lecturers, Harvard Medical School; co-founders of Physicians for a National Health Program.
• Joseph Kutzin, Lead, Health Financing Team, World Health Organization

https://www.eventbrite.com…

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Comment:

By Don McCanne, M.D.

Yesterday I watched livestream the entire hearing of the Health Subcommittee of the House Energy and Commerce Committee. The high point was the five minute testimony of Congresswoman Pramila Jayapal (WA-07) wherein she presented the basis of H.R. 1384, the Medicare for All Act of 2019 (link above) – a single payer model of an improved Medicare that includes everyone. Endorsement of the legislation was provided by Jean Ross, RN, Co-President, National Nurses United.

Other models that might be loosely grouped together as “Medicare for Some” were also discussed, but it was clear that they all fell short of the single payer version, in that they neglected to repair, to one degree or another, most of the major flaws in our current health care financing system.

The protracted comments and questions by the committee members fell roughly into three categories: endorsement of single payer Medicare for All, endorsement of public option Medicare for Some models, and Republican rejection of any expansion of Medicare (except private Medicare Advantage plans), peppering their statements with misleading rhetoric and factually-challenged remarks. An example of the latter is a statement made by witness Scott Atlas: “Single‐payer systems in countries with decades of experience have proven to be inferior to the US system in virtually every important objective measure of access to care and quality” – a blatant lie.

The good news is the growing support for single payer Medicare for All. Jayapal’s single payer bill is the only one that is co-sponsored by over half of the Democratic caucus.

Particularly exciting news (for me anyway) is that there will be a colloquium in Berkeley January 24 on “Medicare-for-All: How to Do It Right” (details at the link above). It will feature some of the most gifted experts in single payer reform, aka Medicare for All. I hope your schedules will allow some of you to attend. The event should turn up the rheostat on the reform movement.

Stay informed! Visit www.pnhp.org/qotd to sign up for daily email updates.

By Christopher Cai, James Kahn
Health Affairs Blog, December 9, 2019

Hospitals account for more than one trillion dollars of health expenditures annually, and analysts have raised concerns that a shift to single payer, or Medicare for All, might adversely affect hospital care. A common narrative has emerged in the popular press and in medical journals, suggesting that Medicare for All would decrease reimbursements and force hospitals, particularly rural hospitals, to cut back on much needed services or even close altogether. These concerns have received increased attention with Elizabeth Warren’s recently released financial proposal for Medicare for All. Understandably, these points have raised concern about the feasibility of Medicare for All. But is this narrative evidence based?

For background, two current bills, H.R.1384 and S.1129, would implement a single-payer, Medicare for All reform. Those bills would cover all US residents for a comprehensive range of benefits, with a government-run insurer replacing private insurance as well as Medicaid and Medicare. Proponents of such reform project that administrative savings would offset the increased costs of expanding and improving coverage.

These bills would change the way we pay for hospital care but not in the way that has been popularly portrayed. Let’s review the status quo. Currently, private insurers pay 1.4 times the average hospital’s operating costs, while Medicaid pays 0.868 and Medicare 0.881 times operating costs. Not surprisingly, hospitals try to preferentially recruit privately insured patients and worry about subsisting on Medicare-level payments. As one prominent hospital administrator told me, “If Medicare for all were passed, we would have to close our doors in a month.” Some also suggest that Medicare reimbursement rates would encourage hospitals to shift to higher-margin, procedure-intensive care, undercutting the projected savings of a single-payer reform and further skewing our health care system away from cognitive and preventive care.

Medicare For All Proposals For Hospital Financing

These projections assume that hospitals will continue to be paid on a per-patient basis under single payer, with reimbursement rates plummeting to Medicare levels. However, Elizabeth Warren’s financing proposal keeps per-patient billing but raises reimbursements to 110 percent of Medicare levels, which would approximate operating costs of hospitals.

Congressional bills go further. The House bill would abandon per-patient payments and instead fund hospitals through “global budgets.” (The Senate version also calls for global budgets for hospitals but suggests that some elements of Medicare’s current payment approach might persist.) Under global budgeting, hospitals would receive an annual lump sum, distributed in monthly installments, similar to how US fire departments or hospitals in Canada are financed. Under this system, hospitals would receive extra funding in the case of unexpected deficits and would not keep surpluses for themselves. At present, surpluses (or the expectation of future surpluses available to pay back loans or bonds) is the main source of funding for hospital upgrades or expansion.

Per-Patient Billing Leads To Wasteful Spending

Currently, hospitals have incentives to invest their surpluses in capital projects that will maximize future profits/surpluses, for example, operating rooms or other facilities serving mostly privately insured orthopedic patients. Reflecting those incentives, the number of knee and hip replacements at small rural hospitals increased 42 percent between 2008 and 2013. Yet, such capital investments may not fit communities’ most urgent needs or be appropriate at all: Thirty-day mortality for elective surgeries in small rural hospitals can be twice as high as in other hospitals, likely due to low patient volume .

The race to expand lucrative services has led to a self-reinforcing cycle of rising hospital costs. As recently as 2000, Medicare level reimbursements were sufficient to cover hospital operating expenses but since then a wasteful cycle has emerged. Rising costs—driven, in part, by hospitals’ investments in expensive development projects—have increased incentives to court privately insured patients, leading to increased costs and an even greater need to court the privately insured.

Our current financing system incentivizes hospitals to engage in other wasteful behaviors. To handle bills from multiple payers, hospitals have created massive administrative apparatuses for billing: Currently, administrative costs consume 25.3 percent of total US hospital expenditures, roughly double that of Scotland or Canada, which operate under single-payer global budget systems. Hospitals have attempted to become more profitable primarily by increasing prices, investing in technology, or taking fewer publicly insured patients, rather than becoming more efficient or cutting expenses. Roughly a quarter of US health care spending is wasteful, with inefficient administration the greatest contributor, but no incremental interventions have been proven to substantially reduce administrative inefficiency. Global budgeting would address these inefficiencies by streamlining payment, leading to $150 billion in annual savings.

Hospitals deserve an appropriate amount of funds to meet the growing needs of their communities. But the current system is geared to maximizing profits rather than serving the public health. In San Francisco, for example, a dozen hospital systems compete for privately insured obstetric patients, yet nearly half of rural nearby counties lack an obstetrics service altogether. Since 2010, 160 rural hospitals across the nation have closed, and the rate is accelerating. Some rural hospital closures are driven by low volume, and in such cases, closure of inpatient services might be reasonable. However, many jeopardized rural hospitals serve a high volume of patients, yet still face financial challenges because fewer rural patients have the private insurance that brings high payment rates.

Hospitals would still grow under a global budget payment strategy; the single payer would fund new capital investments through grants, similar to the federal government’s Hill Burton grants that fueled hospital expansion in the post-World War II era. But grants would go to hospitals in need, instead of funding new hospital atriums or luxurious nonclinical projects. Safety-net hospitals would see an increase in operating budgets because payment would be adjusted to meet hospital needs, not determined by the patients’ payer mix.

A Better Hospital Financing System

Given the magnitude of this proposed reform, it’s understandable some are concerned that Medicare for All would be too disruptive. Yet, patients and doctors would experience little, if any disruption. Our current system limits choice through high deductibles, tiered hospitals, and unaffordable prices. Under single payer, patients could choose any doctor and hospital, everyone would be insured, and bureaucratic burdens would be greatly diminished. Furthermore, under global budgeting, payment levels would be monitored and adjusted over time by a panel of health care experts.

Any bill proposing to reform US hospital financing needs to be thoroughly critiqued and evaluated. Yet, the current dialogue does not accurately reflect the actually proposed single-payer plans. Senator Warren’s plan covers operating costs of hospitals by preserving per-patient payments and increasing reimbursements to 110 percent of Medicare levels. Both congressional bills go a step further via global budgeting, which would better match funding to need and streamline the bureaucracy necessitated by the current hospital payment approach. Under these bills, needed hospitals, particularly rural and safety net, could thrive, and unnecessary hospitals would close. That is a more just financing system, one that would reward judicious hospital stewardship and care for the underserved, rather than court privately insured patients.

Authors’ Notes

The authors would like to thank David Himmelstein, MD; Christine Cassel, MD; and Stephanie Woolhandler, MD, MPH, for their feedback on prior drafts. Christopher Cai is a student board member of Physicians for a National Health Program.

Christopher Cai is a medical student at the University of California, San Francisco. James Kahn, MD, is an emeritus professor at the Philip R. Lee Institute for Health Policy Studies at the University of California, San Francisco.

The online version has links to references for this article:
https://www.healthaffairs.org…

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Comment:

By Don McCanne, M.D.

It has been claimed by many opponents of single payer Medicare for All, and often echoed by the media, that such a program would underfund hospitals, causing many of them, especially rural hospitals, to close due to insolvency. Such claims are based on a lack of recognition of significant savings in the single payer model, and a lack of understanding of a change in the financing infrastructure for hospitals under single payer.

Under single payer there would be a dramatic reduction in the profound administrative waste that characterizes our current method of paying for hospital services. Also the public payer would be more effective in ensuring negotiation of fair prices for products and services used by the hospitals. Those savings would reduce the strain of hospital budgets by reducing expenditures, thus enabling a reduction in revenue requirements. Keep in mind that polls confirm that the public is very concerned about the high costs of our health care system, and they want something done about it.

Also under the leading models of single payer, costs for hospitals would be controlled by being placed on global budgets, much as with our fire departments – a method already proven effective for hospitals in Canada.

Today’s article by Christopher Cai and James Kahn is important because it explains how hospitals will be adequately financed, refuting the doom and gloom predictions of Medicare for All opponents. This article should be saved to be used in your advocacy work on behalf of single payer Medicare for All.

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By Jacob Goldin, Ithai Z. Lurie, and Janet McCubbin
National Bureau of Economic Research, December 2019

Abstract

We evaluate a randomized pilot study in which the IRS sent informational letters to 3.9 million taxpayers who paid a tax penalty for lacking health insurance coverage under the Affordable Care Act. Drawing on administrative data, we study the effect of the intervention on taxpayers’ subsequent health insurance enrollment and mortality. We find the intervention led to increased coverage in the two years following treatment and that this additional coverage reduced mortality among middle-aged adults over the same time period. Our results provide the first experimental evidence that health insurance reduces mortality.

From the Conclusion

Drawing on a randomized pilot intervention, we examined the effect of outreach about tax incentives to enroll in health insurance coverage among taxpayers who had previously paid a penalty for lacking coverage. We found positive effects of the intervention on subsequent enrollment decisions, particularly for taxpayers who were uninsured in the year prior to intervention. We also found that the intervention reduced mortality among middle-aged adults in the subsequent two years, which we attribute to the additional coverage the intervention induced. Our findings thus provide strong empirical support, and the first experimental evidence, for the hypothesis that health insurance coverage reduces mortality.

https://www.nber.org…

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Comment:

By Don McCanne, M.D.

Health insurance saves lives. Yet our current national policies are projected to leave about ten percent of our population uninsured over the next decade. People will die prematurely merely because they are uninsured.

Although this study showed that tax penalties were effective in increasing coverage and reducing mortality, they certainly did not result in universal coverage, and, besides, the penalties have been eliminated anyway.

Perpetuating our current financing system while adding a public option for purchase will not result in everyone being covered, and the most recent Republican proposal would actually increase the number of uninsured.

Premature deaths due to lack of insurance are preventable. Changing to the single payer model of Medicare for All would automatically include everyone, regardless of personal income or wealth since the financing is totally separated from the coverage. Equitable progressive taxes would make the system affordable for all of us. Considering not only the reduction in deaths but also the reduction in physical suffering and financial hardship, we really can’t afford not to do it.

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