Health Care for America Now

MedPAC Debunks Cost-Shifting Claims of Hospital, Insurance Industries

Alex Lawson — Sat, 04 Jul 2009 10:33:36 -0400

A report done for Health Care for America Now

A recent Milliman, Inc. analysis on behalf of America’s Health Insurance Plans (AHIP) argues that Medicare doesn’t pay hospitals enough, causing private payers to pay well above costs to keep hospitals solvent. This is referred to as ‘cost-shifting.’ (1) The non-partisan Medicare Payment Advisory Commission (MedPAC) refutes this argument and finds that a hospital’s relative market strength – and not Medicare-related cost-shifting – determines what a hospital is paid by private payers. This issue is central to the current debate on establishing a new public health insurance plan option and the authority of the new plan to establish reasonable provider rates.

History of Hospital – Private Payer Relative Market Strength

The history of private insurers and hospital price negotiations is a telling one, as MedPAC explained in its March 2009 report to Congress. (2)

Hospital leverage: From 1987 through 1992, hospital profits from private payers grew, and from 1987 through 1993 the rate of hospital cost growth was above the rate of inflation in goods and services purchased by hospitals.

Insurer leverage: From 1994 through 2000, managed care restrained private-payer payment rates, and hospital cost growth fell below the rate of inflation in hospital-purchased goods and services.

Hospital leverage returns: “By 2000, hospitals had regained the upper hand in price negotiations due to hospital consolidations and consumer backlash against managed care,”(3) MedPAC reported.

With the loss in leverage over hospitals, private insurers have in turn passed along these costs through higher premiums to enrollees and employers. MedPAC reported, “While insurers appear to be unable or unwilling to ‘push back’ and restrain payments to providers, they have been able to pass costs on to the purchasers of insurance and maintain their profit margins.”(4)

Findings on Hospital Revenues, Costs and Pricing

Hospitals with the greatest resources are less aggressive about containing costs and therefore have the highest Medicare ‘losses’ (the difference between Medicare rates and a hospital’s average costs). The most profitable and powerful hospitals spend more and increase their costs per unit of service. Hospitals with high profits, low financial pressure, large endowments or robust fundraising have the highest costs, and a higher cost base leads to lower Medicare margins. If Medicare were to increase payment rates, hospitals with market power would be unlikely to voluntarily cut prices charged to insurers and reduce revenue. Instead, hospitals might spend some or all of that revenue, pushing costs higher still. (5)

Hospitals in markets with little or no competition force private insurers to pay excessive rates, driving prices too high. That is the finding of MedPAC,(6) corroborated by insurance industry leaders, including AHIP President Karen Ignagni, who said hospital industry consolidation had increased hospitals’ market power, thereby reducing insurers’ ability to negotiate discounts.(7) In areas with more robust hospital competition, insurers have the power, much like Medicare, to set provider rates.

The real issue is not whether private plans pay doctors and hospitals more than government programs, but what is a fair rate based on the actual cost of providing quality care. The Milliman report itself discloses the limitations of its study, noting that it "does not assess appropriate levels of payment.” (8) It only compares how much different payers reimburse providers for the same service. MedPAC reports that Medicare aims to establish payment rates that cover costs that reasonably efficient providers would incur in furnishing high-quality care, thereby rewarding providers whose costs fall below the payment rates and giving an incentive to those with costs above the payment rates to become more efficient. (9)

MedPAC concluded, “Increasing Medicare payments is not a long-term solution to the problem of rising private insurance premiums and rising health care costs. In the end, affordable health care will require incentives for health care providers to reduce their rates of cost growth.” (10)

Relation of Cost to Quality
Although efficient hospitals have lower costs, they often deliver better medical care, MedPAC found in a separate study. (11) In a review of 300 hospitals that performed well on a mix of quality measures and costs, the agency found these hospitals tended to have lower patient death rates than other hospitals.

1. Milliman, “Hospital & Physician Cost Shift: Payment Level Comparison of Medicare, Medicaid, and Commercial Payers,” December 2008. Accessed at http://www.milliman.com/expertise/healthcare/publications/rr/pdfs/hospit....
2. Medicare Payment Advisory Commission, “Report to the Congress: Medicare Payment Policy,” March 2009. Accessed at http://www.medpac.gov/documents/Mar09_EntireReport.pdf.
3. Ibid. Pg 58.
4. Ibid. Pg. 59.
5. Ibid.
6. Ibid.
7. “Daschle to Face Tough Questions on Competition in Health Insurance,” Robert Pear, The New York Times, January 8, 2009. Accessed at http://www.nytimes.com/2009/01/08/us/politics/08daschle.html.
8. “Consumers and Employers Paying Almost $90 Billion Due to Under-Payments to Hospitals and Physicians by Medicare and Medicaid,” Press Release, America’s Health Insurance Plans, December 9, 2008. Accessed at http://www.ahip.org/content/pressrelease.aspx?docid=25218.
9. Medicare Payment Advisory Commission, “Hospital Acute Inpatient Services Payment System," October 2008. Accessed at http://www.medpac.gov/documents/MedPAC_Payment_Basics_08_hospital.pdf.
10. Ibid, p 64.
11. Medicare Payment Advisory Commission, “Statement for the Record,” March 10, 2009, Committee on Ways and Means.

The insurance industry shouldn't get between you and your doctor

Alex Lawson — Tue, 12 May 2009 10:27:06 -0400

Health Care for America Now (HCAN) – the nation’s largest health care campaign – debuted a new TV ad in six key states today emphasizing the need for a public health insurance option in health care reform and asking nine specific Senators to support that choice: Senator Arlen Specter (D-PA), Senator Ben Nelson (D-NE), Senator Mike Johanns (R-NE), Senator Ron Wyden (D-OR), Senator Blanche Lincoln (D-AR), Senator Mark Pryor (D-AR), Senator Evan Bayh (D-IN), Senator Richard Lugar (R-IN), and Senator Thomas Carper (D-DE). The ad names the Senators in each state who have not yet publicly signed on in support of a public health insurance option.

“Doctor” features Dr. Valerie Arkoosh, MD, MPH who was born and raised in Omaha, Nebraska and practices in Philadelphia, PA. Dr. Arkoosh explains that private health insurance companies have been in control of decision making for too long. She says members of Congress should support giving everyone the choice of a public health insurance plan as part of real health care reform so doctors and patients are no longer at the mercy of private health insurance companies making decisions doctors and patients should be making together. Dr. Arkoosh is with the National Physicians Alliance, a Health Care for America Now member organization representing 20,000 physicians across specialties and throughout the United States.

“Health Care reform is happening now, and now is the time Congress should be supporting the key components of President Obama’s health care proposal, including giving everyone the choice of a public health insurance plan,” said Richard Kirsch, National Campaign Manager, Health Care for America Now. “As we see health care industry stakeholders volunteer to control costs in a system that covers everyone, it becomes even more urgent we create a new public health insurance option to drive true savings and innovation and guarantee quality and transparency.”

“Opponents of reform can try to scare the public with threats of rationing and denied care, but we as physicians see health insurance companies rationing and denying care in practice every day,” said Dr. Valerie Arkoosh, MD, MPH, National Physicians Alliance. “It’s time our patients had a real choice – a choice of a public health insurance plan.

The “Doctor” ad will run for a week starting today in Pennsylvania, Nebraska, Oregon, Arkansas, Indiana, and Delaware. All of the ads are available online at http://www.healthcareforamericanow.org/doctor.

Health Care and Common Sense: HR676

Berry Ives — Wed, 12 Nov 2008 12:22:03 -0500

Of course, the plan Kennedy refers to in his recent Washington Post article is one like that proposed by Health Care for America Now, which is the one that overwhelmingly has dominated the articles of CAF's writers and which is presently being supported by Obama.

One of the many flaws in that proposed plan is that it is a needs based program, which makes it kind of like a welfare program:

"Health care coverage with out-of-pocket costs including premiums, co-pays and deductibles that are based on a family’s ability to pay for health care and without limits on payments for covered services." [source: HCAN website]

It also has a feature that I haven't seen discussed here at CAF (did I miss it?):

"To the extent that employers contribute to the cost of health coverage, those payments should be related to employee wages rather than on a per-employee basis. " [source: HCAN website]

I guess that means that the amount your paychecks are docked at work for health insurance depends on how much you earn.

There is a much better alternative, the plan proposed by Conyers and Kucinich in HR676, The United States National Health Insurance Act, which is supported by a very large number of labor unions:

http://www.guaranteedhealthcare.org/fact/hr-676-union-endorsers

Since Kennedy refers to the cost of the Obama plan as being expensive, maybe folks should consider more seriously the following:

"Physicians For A National Health Program reports that under a Medicare For All plan, we could save over $286 billion dollars a year in total health care costs":

http://pnhp.org/news/press_releases.php

There is significant support for HR676 from health care professionals:

“Doctors, citing mandate for change, call on Obama, Congress to 'do the right thing' on health reform: 15,000 physicians urge enactment of single-payer system”:

http://www.pnhp.org/news/2008/november/doctors_citing_mand.php

Sure, 15,000 is only 2% of the number of physicians in the U.S., but then, what percentage of people calling themselves progressive Democrats are in CAF?

Further, from the HCAN plan: "Health coverage through the largest possible pools in order to achieve affordable, quality coverage for the entire population and to share risk fairly."

But the largest pool is of course that of a single-payer plan, not the HCAN plan alias Obama plan alias Democratic Party Platform plan.

HCAN would include: "A watchdog role on all plans, to assure that risk is fairly spread among all health care payers and that insurers do not turn people away, raise rates or drop coverage based on a person’s health history or wrongly delay or deny care."

That sounds like some real bureaucratic overhead compared to a Medicare for All plan like HR676 from Conyers and Kucinich, for which most of the minimal overhead already exists in Medicare.

But what do we care about efficiency and equity? What do we care about $300 billion per year saved? Let’s see how balkanized we can make our health care in America. Let’s leave all those existing insurers and public health programs for the segmented population of seniors, veterans, native Americans, children, employed persons with employer-based private insurance, employed persons without insurance, unemployed persons, homeless people, etc, etc. It’s all good. Don’t rock the boat. And above all, don’t use any common sense.

Why not have a plan where anybody can get care independent of their status within any of those market segments? You need care, you go get it. Single-payer.