Dan O’Neill raises a very salient point about any proposal to expand the reach and scope of Medicare:
In the politics of Medicare expansion, hospitals will probably be a much bigger naysayer than insurers.
Each year, there are probably about 2 – 2.5 million inpatient admissions in the population aged 60 – 65. Could be a $20-30B revenue swing in moving that group to MA prices. https://t.co/B5mwRbIVx2
— Dan O’Neill (@dp_oneill) October 5, 2020
Hospitals have very different payment scales for different types of insurance. For the same procedure on identical patients, the payment scale usually goes like this from high to low:
- Group commercial insurance
- ACA individual market
- Medicare Advantage
- Self-pay/charity care
This is a good but rough rule of thumb. Some markets have a lot of variation. The ACA individual market has insurers paying Medicare rates. The ACA individual market has insurers paying top of market group commercial rates. But as a heuristic, this is good enough…
Service utilization basically rises as a function of age. Medicare and Medicare Advantage pay for a lot of hospital stays. Medicare gets a good rate because it has the combination of volume and federal administrative price setting. Hospitals could say no to Medicare rates but they would be giving up a lot of volume. Medicare Advantage has out of network rates that are strictly linked to Medicare rates and no balance billing which means hospitals can’t leverage patients against their insurers to get a higher payment rate.
60-64 year olds is the biggest cohort of people who are likely to be heavy on people with group commercial insurance who use a good amount of services. There are plenty of people in this cohort who are on Medicare for disability, Medicaid and ACA plans, but way more people are on commercial plans at age 64 than at age 65.
A movement towards Medicare for More means a lot of people who are getting a lot of services at 180% or 220% of Medicare rates would be getting those services at 100% Medicare. This is real money for hospitals. They will fight. We saw in the Washington state public option program the network fight resulted in the proposed rates to go from just over 100% Medicare to at least 160% Medicare. In North Carolina, the state treasurer tried to get hospitals and clinical groups to accept ~180% Medicare and the clinical providers refused to participate in the state employee health plan networks to keep their 200%+ rates.
So why does Medicaid expansion usually receive significant hospital support? From a cynical point of view, Medicaid expansion is usually a movement of a population from a low utilization and low net revenue with lots of bad debt category (self-pay and charity care) to a level with higher utilization and higher revenue per unit. Medicaid expansion is usually a step up the revenue ladder for the population that will receive the benefit and the hospital serves. Medicare for More is a step down the revenue ladder.
These tensions are conflict points will be very pronounced next year if Senator Manchin (D-WV) is to the right of the median Senator as policy will be made.
I’ve not heard this point before, but it seems to be true by inspection. Of course those that are getting paid now will scream if payments are reduced. It was ever thus.
The clear solution is to rationalize the system so that there are fewer payers or fewer prices. “New hips – $2995!!” Will it be possible to make that happen in the next, say, 10 years?
Thanks as always for your clear analysis.
David, just want to let you know that I used your recommendation of Health Sherpa last month when I got laid off and needed insurance. They were fantastic! I’m not in a state that has its own marketplace and this was so much better than dealing with the federal site.
David, my recollection is that 50 years ago when I was growing up, hospitals weren’t in the business of making money. They were usually owned by the city or the county or a religious denomination – at least, if the names of the hospitals were any indication.
But somewhere along the way, all that changed. In the county I grew up in, Fairfax County Hospital became Inova Fairfax Hospital, and that hardly seems to have been an isolated instance.
So my question: is there a good history of this somewhere, whether a book-length treatment or a long-read magazine article, or something else? I’ve been wanting to know for a while just how we got from there to here – and to what extent my anecdotal view of things represents reality, and to what extent it doesn’t.
You’ve buried the lede in your next-to-last graf (key word: “debt”). Medicare patients are the best patients they have. But there is going to be a lot of bluffing. The job of Democratic members of the House and Senate will be to shut down the bluffing, with the uttermost (rhetorical!) violence, in open forum.
@Another Scott: I am presently in Inova Mt Vernon Rehab Center (acute care) recovering from being awarded new hips. The patient’s portion of the bill is still “in process” but I bet you one stale doughnut the price is north of your estimate.
@lowtechcyclist: It all changed in the late 70s when Some Bastards upended the system you describe in favor of allowing the medical industry to act like corporate whores instead of public servants. HMOs came in then, as well as a predictable decline in standards. A return to those times with 20-20 hindsight and some resurrections would permit the perpetual face-slapping of not just Some Bastards but all the Dickheads who allowed it, with a bonus slapping on the hour every hour for eternity with a dead fish that paragon of nonsense Howard Jarvis.
@Frank Wilhoit: “Best” is contextual–they’re the most reliable, but far from the most lucrative, and not enough on their own.
Remember that Jenga tower from “The Big Short?” The Medicare patients are the solid middle BBB in that tower. But if you just skim the cream AAA and AA off the top without finding a way to make those C and D patients at the bottom more viable to the hospitals, the tower is going down.
No one should trust hospitals on what things cost, but there are lots of reasons to think that if we were all in Medicare, we could adjust Medicare prices upward to some extent. This is a big subject. When I try to explain it to the uninitiated, I start with the idea that every one of these payment sources is like a river, and you need to learn how to row and navigate every one of them separately. Some (Medicaid) are like Class 5 rapids (lots or rules, very little margin), while others are less intense. The point is, for most providers, every payment/regulatory stream requires the expenditure of significant resources and carries with it separate risks — BUT if you look at the state of Maryland you begin to see the kind of relief you can get when you are able to stop worrying about who has what payment source. That’s something that can be achieved, at least for inpatient care.
Another change that accompanied hospitals becoming for profit corporations is that the profession of hospital administrator became a very high dollar position. It reminds me of how the press became more rightward leaning when being a journalist went from being “scrappy truth teller” to ” I want BriWi’s job, and especially his paycheck”.
The author knows a lot more about the industry, and what happens in the real world, than I do, but I was shocked to see “self-pay/charity care” listed as the lowest. Probably I misunderstand the term “payment scale.” If it means the money successfully collected, minus cost of collection, it makes sense, but for years I’ve been told that the prices billed for “self-pay/charity care” is two or three times what is charged to people with the highest-priced insurance. I’ve long suspected hospitals would actually collect more if they dropped the prices they bill to levels that had some reasonable prospect of being paid, without resorting to exorbitantly expensive collection agencies.