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In this election season, when tackling health care costs is a top voter concern, the Democratic primary candidates are offering different visions for reform, and have spent debates arguing over the costs of those plans. What has gotten less attention, and what is at the heart of any reform, is the biggest factor in health care spending: hospital payments.
“If we want to control the health care burden on the U.S. economy, then we have to control hospital prices,” said Gerald Friedman, an economics professor at the University of Massachusetts, Amherst who studies health care financing.
Proposed changes to hospital payments are buried in plans to overhaul health care by moving to "Medicare for All” or the more moderate public option, sometimes called "Medicare for All Who Want It." Both would rock the books of every hospital in Massachusetts because Medicare almost always pays hospitals less than private health insurance companies. Sometimes a lot less.
“There would be a redistribution of payments,” said Meredith Rosenthal, a professor of health economics and policy at Harvard’s Chan School of Public Health. “That’s the big change. Some hospitals would be winners and others would be losers.”
Among the possible “winners” under “Medicare for All”: Cambridge Health Alliance, the only hospital in Massachusetts that made more money treating an elderly Medicare patient than a younger person with private insurance. That’s based on 2016 data — the latest available — used by the Health Policy Commission (HPC) for a report that compares average discharge payments to hospitals from Medicare versus private health plans.
Cambridge is the only hospital in Massachusetts that would have received more money in 2016 if all payments were based on Medicare rates. Cambridge, a safety net hospital, is one of a few hospitals that provide mental health care and other services with low reimbursement rates. Health economists say these hospitals and their low- to moderate-income patients could benefit under a shift to more Medicare payments.
“Losers” might include some of the state’s largest and most expensive hospitals, like Massachusetts General — which made 175% of its Medicare rate for an average private insurance patient discharge — and those that can demand higher payments because they serve a specific area, like Cape Cod Hospital, which made 208% for private insurance patients over Medicare. For these hospitals, Rosenthal says the worry is they would cut back or end high-tech services “or reduce quality in terms of staffing.”
But in reality no one knows what would be lost in a move to “Medicare for All,” said Stuart Altman, a health policy professor at Brandeis University who chairs the HPC. Would hospitals trim spending on research, training, salaries or amenities? How would that affect patient care?
“Once you’ve developed a lifestyle based on a certain income, to say that you could live with 20% less doesn’t mean you won’t have to give up a lot," said Altman. “And maybe what you give up is quite important.”
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You can view the commercial and Medicare price comparisons for 55 Massachusetts hospitals here. You can also see the payment differences for hip or knee replacement surgery, a skin infection called cellulitis, colonoscopies and brain MRIs. The HPC provided these numbers via a public records request.
The sometimes stark difference between Medicare and private insurance payments is only part of the hospital impact story of a health care overhaul. Under “Medicare for All” many hospitals would spend less on insurance billing and collecting unpaid bills. Hospitals and health centers in Massachusetts requested $456 million from a state fund in 2016 for uninsured and underinsured low-income patients. Nationwide, hospitals provided uncompensated care worth $41.3 billion in 2018, according to the American Hospital Association.
And hospitals that treat a lot of low- to moderate-income patients on Medicaid would see a payment boost because that government program pays less than Medicare. Under “Medicare for All” or a new public option plan, payments for Medicaid patients would likely rise to at least the Medicare rate.
“That will make up for some of the cut that will happen with private health insurance,” said Friedman. “But that varies a lot by hospital.”
In 2016, the hospitals with the highest percentage of Medicaid revenue include Cambridge Hospital at 39%, Boston Medical Center with 37% and Lawrence General with 31%. These calculations are based on numbers collected by the state’s Center for Health Information and Analysis. On the flip side, New England Baptist Hospital had no revenue from Medicaid. Lahey, now part of Beth Israel Lahey Health, had just 8% of revenue from Medicaid and Brigham and Women’s had 12%. So, those hospitals would see less benefit if Medicaid rose to the Medicare rate.
But what would that Medicare rate be? Most candidates have avoided tying themselves to a number, perhaps because hospital payments are a make or break issue, the largest piece of the health care spending pie.
In a paper examining “Medicare for All” financing, Friedman proposes a 10% increase in Medicare payments to cover hospital costs. Other estimates of the cost of “Medicare for All” include a range — from no change in hospital payments to a 15% or 24% boost.
Bernie Sanders, whose signature issues include “Medicare for All,” hasn’t said if he would increase, lower or maintain hospital Medicare payments. A UMass study requested by a national nursing group that supports Sanders proposes no increase. The study author clarified the cost of the proposal at the request of Sanders’ policy director last fall. Sanders has not endorsed the proposed Medicare hospital rate.
Elizabeth Warren does get into details. In her single-payer plan, hospitals would get a 10% Medicare payment increase. At that rate, using the hospital discharge payments, only three Massachusetts hospitals would make more than they did in 2016 from private plans. (Warren says her initial move would be to create Medicare as optional coverage, under which hospital payment rates would drop, over time, to Medicare plus 10%.)
The other leading Democrats all propose expanding access to health insurance through the option of a government plan. But Joe Biden, Michael Bloomberg, Pete Buttigieg and Amy Klobuchar have not suggested a hospital rate. Other cost factors would include how many Americans buy in, and whether hospitals would face penalties if they didn’t accept the government insurance plan.
When asked for comment, the Massachusetts Health and Hospital Association refrained from discussing the impact “Medicare for All” or a public option might have on members.
“Our primary focus is to build on the system we created in Massachusetts back in 2006, and continuing to strengthen the Affordable Care Act,” said Steve Walsh, MHA president & CEO, in a statement. “MHA and the hospital community continue to strongly support the tenets of universal healthcare coverage and the best possible access for our patients.”
Hospitals are proving to be tough negotiators as debates about Medicare hospital rates play out in real time. A public option plan approved in Washington state last year will pay hospitals at 160% of Medicare. That’s well above Warren’s 110% proposed rate, which would already cost $20.5 trillion. In Massachusetts, the Washington state rate would boost 32 of the 55 hospitals we looked at above their commercial payments, based on the 2016 rates.
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All of these numbers highlight areas where hospital pricing “is out of whack,” said Rosenthal. She said the gaps between Medicare and commercial payments come down to this: market power. Hospitals that offer unique treatments, that have strong reputations, or that are the only nearby option in more rural areas, can demand high private insurance payments.
“Comparing what hospitals get paid by commercial insurers versus Medicare shines a light on where competition is not driving prices closer to costs,” Rosenthal said.
This segment aired on February 24, 2020.
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