By Kevin A. Schulman, M.D. and Arnold Milstein, M.D.
JAMA, April 4, 2019
Health care has already emerged as a major 2020 campaign topic for the Democrats, with some candidates advancing the concept of “Medicare for all.”
Operating at a much higher cost proved feasible for hospitals because most were able to negotiate increasingly higher payment rates with private payers to offset their mounting losses on publicly funded care.
The cumulative effect of this hospital management strategy, as well as Medicare payment policy enacted in the Affordable Care Act that mandates annual productivity gains, is that Medicare and Medicaid now pay hospitals significantly less than their estimated average costs (86.8% and 88.1% of costs, respectively; Medicaid and Medicare payments include Disproportionate Share Hospital payments in this calculation), whereas private payers pay hospitals more than their average costs (144.8% of costs on average).
A Medicare-for-all plan that extends the current Medicare fee schedule to all patients would therefore lead to a marked decline in revenue from formerly privately insured patients and a small decrease in revenue from formerly Medicaid-covered patients.
Developing a political coalition for the most expansive visions of Medicare for all would be extremely challenging under any circumstance. In the absence of exceptional public-mindedness among hospital leaders, supporters of Medicare for all should anticipate strong hospital political opposition, especially from leaders who have pursued strategies less focused on efficiency than on extracting ever-increasing payment rates from private payers.
Hospitals Stand to Lose Billions Under ‘Medicare for All’
By Reed Abelson
The New York Times, April 21, 2019
The yawning gap between payments to hospitals by Medicare and by private health insurers for the same medical services may prove the biggest obstacle for advocates of “Medicare for all,” a government-run system.
If Medicare for all abolished private insurance and reduced rates to Medicare levels — at least 40 percent lower, by one estimate — there would most likely be significant changes throughout the health care industry, which makes up 18 percent of the nation’s economy and is one of the nation’s largest employers.
Dr. Adam Gaffney, the president of Physicians for a National Health Program, warned advocates of a single-payer system like Medicare for all not to seize this opportunity to extract huge savings from hospitals. “The line here can’t be and shouldn’t be soak the hospitals,” he said.
“You don’t need insurance companies for Medicare for all,” Dr. Gaffney added. “You need hospitals.”
But those in favor of the most far-reaching changes, including Senator Bernie Sanders, who unveiled his latest Medicare for all plan as part of his presidential campaign, have remained largely silent on the question of how the nation’s 5,300 hospitals would be paid for patient care.
While both the Medicare-for-all bill introduced by Representative Pramila Jayapal, Democrat of Washington, and the Sanders bill call for a government-run insurance program, the Jayapal proposal would replace existing Medicare payments with a whole new system of regional budgets.
“We need to change not just who pays the bill but how we pay the bill,” said Dr. Gaffney, who advised Ms. Jayapal on her proposal.
Hospitals would be able to achieve substantial savings by scaling back administrative costs, the byproduct of a system that deals with multiple insurance carriers, Dr. Gaffney said. Under the Jayapal bill, hospitals would no longer be paid above their costs, and the money for new equipment and other investments would come from a separate pool of money.
This Is The Part Of ‘Medicare For All’ That You Never Hear About
By Jonathan Cohn
HUFFPOST, April 20, 2019
Sanders and his allies rarely mention that Medicare for All would also restrict the flow of money into the rest of the health care industry, including the parts that aren’t as easy to demonize in speeches.
At the top of that list are hospitals, which alone account for roughly one-third of the nation’s health care spending. No other sector, not even pharmaceuticals, rivals it. Under the Medicare for All proposals from Sanders as well as some other potential reforms getting attention these days, the federal government would limit payments to hospitals, quite possibly reducing their incomes significantly.
The case for squeezing hospitals is strong, given the available research on what they charge and why. Even some experts historically wary of government regulation are warming to the concept.
But for now, at least, hospitals have shown no interest in discussing further cuts. On the contrary, they are part of an industry-wide lobbying effort to defeat any expansion of government-run health insurance, even relatively modest ones that wouldn’t do much to affect their revenue.
Besides, the status quo rations care too ― by making it so inaccessible for people with skimpy coverage or no insurance at all. All over the U.S., every single day, people are delaying or simply skipping procedures because they can’t afford them and high hospital prices are one reason why.
Hospitals Will Do Fine Under Medicare for All
By Matt Bruenig
People’s Policy Project, April 22, 2019
The New York Times had coverage (above) of a JAMA article (above) about hospital provider payments under Medicare for All. The headline is that Medicare for All would cost hospitals billions of dollars. But this headline and the story under it are misleading insofar as they do not discuss the offsetting savings that hospitals would achieve from a lower administrative burden.
To understand whether this cut would be problematic, it is necessary to look at how much hospitals will be able to save from the streamlined administration of a Medicare for All system. According to a study published in 2014 (below), around 25 percent of hospital revenue is spent on hospital administration. By comparison, hospitals operating in the Canadian single-payer system spend only 12 percent of their revenue on administration.
What this means is that the administrative efficiencies available under a Medicare for All system allow hospitals to offset 13 points of the 16-point revenue cut without digging into the actual cost of care. The remaining 3 points could come out of hospital profit margin (bringing the margin from 7 percent to 4 percent).
A Comparison Of Hospital Administrative Costs In Eight Nations: US Costs Exceed All Others By Far
By David U. Himmelstein, Miraya Jun, Reinhard Busse, Karine Chevreul, Alexander Geissler, Patrick Jeurissen, Sarah Thomson, Marie-Amelie Vinet, and Steffie Woolhandler
Health Affairs, September 2014
A few studies have noted the outsize administrative costs of US hospitals, but no research has compared these costs across multiple nations with various types of health care systems. We assembled a team of international health policy experts to conduct just such a challenging analysis of hospital administrative costs across eight nations: Canada, England, Scotland, Wales, France, Germany, the Netherlands, and the United States. We found that administrative costs accounted for 25.3 percent of total US hospital expenditures—a percentage that is increasing. Next highest were the Netherlands (19.8 percent) and England (15.5 percent), both of which are transitioning to market-oriented payment systems. Scotland and Canada, whose single-payer systems pay hospitals global operating budgets, with separate grants for capital, had the lowest administrative costs. Costs were intermediate in France and Germany (which bill per patient but pay separately for capital projects) and in Wales. Reducing US per capita spending for hospital administration to Scottish or Canadian levels would have saved more than $150 billion in 2011. This study suggests that the reduction of US administrative costs would best be accomplished through the use of a simpler and less market-oriented payment scheme.
Overall, there is no evidence that the high administrative costs in the United States translate into superior care.
From the Policy Implications
In the United States, administration consumes an increasing share of hospital budgets—a share that is far higher than in nations with simpler and less market-oriented payment schemes. Reducing US spending to Canada’s or Scotland’s level on a per capita basis would have saved $158 billion or $156 billion, respectively—equivalent to 1 percent of the US GDP. Reforming the US health care system so that it operated on a single-payer basis could result in large savings on administration.
By Don McCanne, M.D.
Based on current media reports, it seems as if the nation has just discovered that hospital prices are very high, and for that reason we will not be able to enact a single payer Medicare for All system because hospitals will not be able to survive on the lower rates that Medicare pays compared to private insurers. But there is a fundamental problem with this deceptive framing.
First is that there is a tremendous amount of administrative waste in our hospitals, much of which is recoverable by switching to a well designed single payer system. Second, although the reform proposal is labeled “Medicare for All,” it will not involve simply changing to current Medicare payment rates. Third, operating costs will be covered by global budgets, much as we cover fire departments. Fourth, facilities and major equipment acquisitions will be funded through separate capital budgets with local need determined through regional planning.
Right now the two major hospital associations are partnering with other members of the medical-industrial complex to publicize the fact that hospitals will have to shut down if we enact and implement a single payer Medicare for All program. Not true! You should be prepared with your response when this comes up:
“Single Payer Medicare for All not only recovers a tremendous amount of administrative waste, but it also uses regional planning, global hospital budgets – like fire departments have – and separate budgeting of capital improvements to ensure that we will always have adequate capacity in our hospital system.”
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