• Hospital prices today

    Recently, with some help from a reader and others, I exerted great effort (you have no idea!) to recreate the early history of Medicare hospital payment methodology. Meanwhile, Uwe Reinhardt is masterfully explaining how hospital’s are paid today, both by Medicare and private payers. It’s worth a full read. About Medicare’s current hospital payment system, Reinhardt concludes,

    Although this system can and does accommodate adjustments for local market conditions and sometimes even rewards what policy makers value – extra payments for services provided to underserved areas – it is primarily cost-based rather than value-based, which I and other policy analysts would prefer.

    The only consolation is that the prices in the private health care market do not seem to be value-based, either. Because they are not transparent, it is hard to know what they actually reflect.

    That payment is related to cost and not value is a problem. I’ve discussed it before with respect to the physician pay schedule, though it applies to hospital payments too. Why should we pay for something that has little value? How do we even know what has value or what value means? The answer is more comparative effectiveness research and reform of the payment system to use the results of that research. This is something I’ve discussed before. Moreover, one can imagine how provisions of the ACA would support such developments.

    • The largest disparity between value and cost is in the patented drug pharmaceutical industry. Given the protection of a generation long monopoly, new drugs are priced based on the severity of the patient’s illness. How else to explain drugs for cancer patients costing over $50,000/year and offering a few month’s benefit to some of the patients.

      Interestingly many of these drugs were developed with taxpayer funds and taken private with no repayment of the development costs. Not a bad deal.

      Our money driven non-system is geared to ensure profits not improve outcomes.

    • Since physician pay makes up just 6% of the health care budget, I still think it is the spending physicians, and hospitals, control which is our real problem. While I agree that physician pay should be an area for potential cuts, it would be pretty easy to see a scenario where doc pay is cut, but total system spending increases. I think one appropriate way to look at this is through cost effectiveness research. Cutting out procedures and tests that have a poor ROI makes sense to me.


    • Reinhardt’s observation that the Medicaid rates paid to hospitals are below those of the private sector is inaccurate and incomplete. Whle the actual rates may be less than what is paid by private insurers state Medicaid programs employ a variety of financing mechanisms to draw down additional federal funding that is then channeled to hospitals in the form of supplemental payments,

      Large public hospitals in particluar may derive only 50% of their Medicaid revenue from claims paid through the rate schedule. The other half of thier Medicaid revenue could take the form of Disproportionate Share Hospital (payments) and federal macthing funds for Certified Public Expenditures (CPEs) and Inter-governmental trasfers from local government (ITGs) and well as supplemental payments made possible from provider taxes and “fees” that quality for the federal match. Private Hospitals pay provider taxes and can qualify for the federally enhanced payments as well.

      Calculating Medicaid hospital payments from the fee schedule and claims payments alone, will cause the researcher to seriously underestimate the actual revenue received by hospitals for treating Medicaid patients.

    • This from WaPo today adds more interest.


      Oddly enough, they never note what would happen if Medicare paid the same rates as private insurers.