Unsolved mysteries of Medicare hospital payment

Last week I wondered about when Medicare stopped paying hospitals costs + 2%. I thought I had the answer, but it turns out it is not unique. There is evidence in the literature that this payment scheme ended in 1969 and was also phased out in the 1980s. I documented the 1980 phase out evidence in my prior post on this.

The 1969 evidence was sent to me by Jonathan Oberlander. It’s right there in a 1970 paper by Saitow, on the final page.

On July 1, 1969, Medicare discontinued the 2 percent cost plus factor, which was to take account of costs not precisely measurable or specifically recognized in the reimbursement formulas.

Even more authoritatively, Oberlander quoted to me via e-mail a passage from the 1970 Senate Finance Committee Report “Medicare and Medicaid:  Problems, Issues, and Alternatives.”

The 2-percent bonus on top of accounted-for costs was added to Medicare reimbursement by HEW regulation in 1966; it was subsequently removed by HEW [Department of Health, Education, and Welfare] regulation in 1969.

So, what happened? I don’t know yet. My guess is that the 2% bonus as originally designed ended in 1969, another 2% bonus program began immediately or some time later, and that latter program phased out in the 1980s. Clearly I’ve got a few more dots to connect. Help appreciated!

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