Squeezing Doctors vs Squeezing Hospitals II
Robert Waldmann
Some time ago, I noted the difference between the provision of the Affordable Care Act (ACA) which reduces the scheduled generosity of payments to hospitals, nursing homes and home health care agencies and the formula in a 1997 bill which was supposed to reduce the generosity of payments to doctors and which is waived once each year by the now traditional annual doc fix. The difference is that many doctors with office practices refuse to treat Medicare patients and, as far as I could tell with a half hour of googling, no hospitals refuse to tread Medicare patients. My view is that the new provision will actually be applied, because institutional care providers just can’t afford to say no to the CMS.
Now Jonathan Chait notes that Jeffrey H. Anderson deals with this important difference by lying. Chait doesn’t explain why the difference is important, but his catch is amazing.
First note Anderson is not an obscure hack. Chait wrote “Jeffrey H. Anderson, who has been writing about health care for National Review, the Weekly Standard, the Washington Times, the American Spectator, and Investor’s Business Daily.”
Now note that he most definitely is a hack. Chait wrote
Anderson proceeds to cite the Congressional Budget Office …. He writes:
The CBO begs to differ: “The provisions that would result in the largest budget savings include these: permanent reductions in the annual updates to Medicare’s payment rates for most services in the fee-for-service sector . . . yielding budgetary savings of $186 billion over 10 years.” That’s the physician pay cut.
Anderson provided no link or citation for this quote. It turns out to come from a December 19 CBO letter (page 10) to Harry Reid, assessing the cost of the Senate health care bill, which is not actually the final version. But never mind that. Anderson, if you noticed, inserts an ellipses into the quote from the CBO. Here is the entire quote. I’ve bold-faced the part omitted by Anderson:
Permanent reductions in the annual updates to Medicare’s payment rates for most services in the fee-for-service sector (other than physicians’ services), yielding budgetary savings of $186 billion over 10 years.
Oh my. Notice that the elided text proves that Anderson’s claim is a lie.
By the way, the figure $ 186 billion over 10 years is lower than I thought. Consider the expansion of medicaid enrollment predicted to be about 16 million. If the CMS will send $ 1,200 per medicaid enrollee per year to hospitals etc then the bill will increase the flow of money from the CMS to hospitals etc. Medicaid spending is roughly $ 2,000 per enrollee now in Illinois now. This is lower than in most states and, you know, health care spending is growing quickly.
I don’t know what fraction of medicaid spending goes to hospitals nursing homes and home health care agencies, but, it seems to me that the ruthless cut will amount to the same money going from the same CMS to the same institutional care providers and the only change is that the CMS will pay bills for more patients and pay less for each bill. I don’t think that hospitals etc are currently getting much from the people who will get medicaid coverage who are poor.
Also the individual mandate and subsidies will cause an increase in money flowing from private health insurance companies to hospitals. I see no economic problem at all with actually imposing the $ 186 billion in compensation cuts. Of couirse that doesn’t mean I confidently predict that congress won’t waive them — hospitals have a lobby.
NOte that physicians fees come from part B of medicare while hospital costs come from part A. Part B is partly paid for by general revenue, part A is that which is paid as a part of the fica tax. Part B is now means tested btw.
“scheduled generosity”
Huh?
I am fairly certain our author has never managed a health care facility, or perhaps he is attempting to be sarcastic in a cute sort of way.
***I am fairly certain our author has never managed a health care facility, or perhaps he is attempting to be sarcastic in a cute sort of way.***
With all due respect, I am far from convinced that most american health care facilities have had any experience whatsoever in anything resembling “management” Their standard mode of operation seems to be to shift costs until they succeed in laying them on someone disinclined (they aren’t going to pay anyway) or unable to fight back. C’est magnifique, mais ce n’est pas la mangement.
Don’t get me wrong. I don’t think that facility mismanagement is the only, or even the most important, element in America’s absurdly high medical costs. But I do think that the disinclination of health care facilities to make any serious attempt to control costs is a problem.
VT:
The standard operation policy for a hospital “maybe” to keep beds filled as it generates profit.
I have no great concern for the financial welfare of doctors. Hospitals run the gamut of clean and effective to dismal and dangerous. Controling the costs of health care depends in part on reducing the flow of funds to these two sectors of that industry. There are other cost factors, but let’s focus on physician income for the moment.
As noted I have no great concern for the income of doctors. I do business with a great many and I haven’t noticed any significant shortage of wealth amongst them. I’m in the NY metro area and the doctors probably do better here than elsewhere. I cannot, however, reconcile the government’s interest in cutting fee for service schedules with the incomes they are not willing to control. Did the Treasury not open its coffers to the finance industry just recently? Was there any more than lip service given to holding back bankers’ incomes? Why is it OK to control physicians’ fee schedules, but not to control bankers’ income? Don’t suggest that the government doesn’t pay those bankers’ salaries? The bailout was just that. Those that walked away from executive positions did so with generous pay outs. Those that remained are still raking in large amounts of income. So why doctors and not bankers?
Again, I’m not so concerned with doctors’ incomes. They do provide an essential service, however. Which is more than I can say for too many bankers. The issue is the piece meal way our government is dealing with economic issues. Each small sector is discussed seperate and apart from the whole and those sectors are discussed in a very disparate manner. That’s no way to run a country.
Is it a coincidence that you and Krugman both used the word “elided” in your blogs the same day? (I had to look it up.) Not a word I remember coming across recently in blogs, especially twice the same day.
KeithOK,
It’s a common use of idiomatic speech, but your reading is wrong. In summary, the guy Anderson, ‘e lide about something and that guy Chait, ‘e cought ‘im liein’.
Jack did you notice that the point of my post was that the new cuts are not cuts to physicians fee schedules ? The quoted text specifically notes this. It is the bolded part.
Now if your view of the way the market works is that you let someone charge me whatever he or she wants for a service, then I would love to do business with you. My understanding is that customers tend not to be willing to pay any price at all. I don’t understand why you think the CMS should pay whatever its counterparties want.
My understanding of the market system is that one party makes an offer and the other accepts it or says no and makes a counteroffer and that it is perfectly normal for the first party to say no to the counter offer. This is the way the CMS interacts with care providers (in particular they always say no to counter offers).
What exactly is your proposal ? That the CMS just pay health care providers whatever amount of money the providers choose ? That doesn’t have much to do with my idea of the market or the real world, or any interesting alternative fantasy universe.
But why am I trying to reason with someone who is not willing to read a post before commenting on it ?
OK you’ve nailed me. I had recently read the Krugman post. But it’s not like I just type things I read over there.
Don’t check. No need to check. Please please don’t check and please please don’t tell anyone if you do.
Sorry Waldman, but I wan’t trying to address the issue of physician fees vs hospital charges. Granted my comment is a bit tangential to your post. The issue of controlling physicians’ fees keeps coming up in the health care debate and it simply occurs to me that, why are we singling out the doctors? You might say that I’m using the issue of out of control costs and the fee schedules to address out of control circumstances in the financial sector. My point being, why is one sector open for debate and not the other?
***Now if your view of the way the market works is that you let someone charge me whatever he or she wants for a service, then I would love to do business with you.*** Robert Waldmann
But isn’t that the way large segments of the marketplace do work in practice? Supermarkets and department stores don’t barter. Not in the US. Not most places I think. At best, your auto mechanic probably gives you a price estimate based on parts cost, mark up, and a nominal number of hours for the job taken from a book. If you hire me to fix your computer, I’d bill you based on parts and hours of labor, not on a negotiated price. I’m not defending any of that. Maybe it is one of the reasons that free market capitalism sometimes fails to live up to its promises. But negotiation is only the normal practice in some areas of commerce.
That said, the current system in the US is that prices are negotiated/dictated by insurers, providers, and occasionally patients in an arbitrary and quite non-transparent fashion. One wouldn’t expect a system like that to work very well. And for once, expectations and reality seem to match.
Personally, I think the best system for now would be to have a third party services board determine prices, allow patients to deal with any provider of his/her choice at the services board price, and to rebate half of the savings to the patient if the patient choses to deal with a below board priced provider. But I suspect that such a system would break down after a decade or two when providers and insurers captured the services board. So a Plan B might also be needed eventually.
Hi, I’m a bonafide hack, especially when it comes to healthcare. That’s why I have more questions than answers on the subject.
My questions are, under the new bill/system
1) Will doctors be paid different rates(less) under medicare than insurance companies pay?
2) Will doctors be allowed to refuse care to medicare covered patients, unless the patient kicks in some cash under the table ?
We went thru all this trouble to say insurance companies must sell insurance to everyone, everyone must buy it, cancellation of insurance is not allowed, if you don’t have the money, government has plenty and will provide it because the program doesn’t cost anything and we’ve got the CBO numbers to prove it.
All well and good, but if doctors can deny service to seniors and find a better paying customer, doesn’t this leave a bit of a hole in the system?
I live in a rural area, so we basically have one hospital. It is the health care provider of last resort for those who have no health care coverage or money. In other words, it’s a lot like any urban hospital. This means that there is a lot of cost shifting and cross subsidizing. If Medicaid expands and more people can afford coverage, the hospital will lose some business to doctor’s offices and clinics which can provide health care less expensively, so this could be good for the system. Health care reform will also eliminate a lot of the subsidized cases, since now there will be someone to bill. In theory, the hospital should be able to cut its per service prices since more of them will actually be paid by someone. It might also have to downsize a bit, or emergency room walk ins may have to put up with shorter waits.
I actually have waded through the hospital budget a bit, so I know a fair bit about the cross subsidies. We have a property tax assessment that helps pay for the hospital explicitly, and I know a number of people who are alive today thanks to us having it out here. (Yes, they often medevac people into town for serious care, but the hospital is good at stabilizing.) I’ve also spoken with a guy who used to work in the hospital financial department. He’s a cop now, but he learned plenty at his previous job. (For example, the fee for service depends on the venue, so a doctor at his own clinic can charge more for an Xray or MRI than the hospital can. Why? I have no idea. Blame the AMA or something. This kind of thing hurts our local hospital, but there is lots of good money to be made harming the community.)
A couple of questions for those in the know. Assuming that Medicare fees for services are below market value of the cost of providiing the services, or allow only for a negligible profit margin for the physician (that’s his/her income). First, is that actually the case nation wide? If so, how is such a fee schedule determined and put into effect? Does the health insurance industry play any role, above or below the radar, in determining such schedules? Does the health insurance industry benefit from Medicare paying inadequate fees for services from physicians? In effect, how , and by whom, is such a qualitative decision concerning appropriate levels of income for a specific profession made?
What an odd coincidence. Two PhD’s in Economics with actual command of the English language?
As literary terms go ‘elide’ is not particularly obscure, but absent an actual attempt at analysis at the ground level not one that non-specialists would resort to much.
As to the substance. The Law, at least the last version I consulted of the text, actually boosts payments to physicians, the cuts are primarily directed at medical services that are not in principal actually covered by Medicare. Rusty can fill in detail but the situation as I understand it is that Medicare doesn’t pay for long-term custodial care, on the other hand if you are in such care and not unreasonably suffer from a long list of maladies (otherwise you would probably be in your own house) then Medicare will pick up the cost of your actual medical care. Which just has to create a hellish nightmare of billing where facilities have a direct interest in getting as much as they possibly can classified as ‘medical’ vs ‘custodial’. It would not be surprising to see that one facility’s honest attempt to keep up with the rules looks a lot like another’s deliberate fraudulent manipulation of those same rules.
Similarly I see a lot of reporting in the media about rip-offs in the area of durable medical equipment. For example those ubiquitous ads for scooters that may be “free to you!”. Well they are not free to Medicare, and while it might be nice for you and your elderly mother to have her have some additional mobility and a place to put shopping purchases, there is a pretty blurry line between life-style convenience and medical necessity.
The reason the $186 billion seems so low is that most of the proposed Medicare savings come in the form a removing the extra premium paid to private insurance Medicare Advantage Plans. Generally Medicare pays these plans a 15% bonus on top of regular Medicare in exchange for—, well for not much really. The theory was that the greater efficiencies of private industry combined with more focus on preventive care would lower costs across the board. Instead the privates just threw in services like gym memberships and eyeglasses and pocketed the billions left over.
Medicare Advantage was just a huge scam, an exercise in corporate welfare and blind faith in private markets in all cases, whether or not the predicted efficiencies ever eventuated. Well in the case of MA they never did. If the private insurers are really that efficient let them show it at standard Medicare premiums.
So if you want to know why Republicans are jumping to the defense of Medicare when they never seemed to care much for the program or the people it served before? Well that extra huge chunk of cash going to MA today that is going away I think explains their real concerns pretty well.
1) Well they certainly can be paid at different rates. On the other hand the insurance company might be more or less combative than Medicare, or pay on a slower or quicker schedule. Getting a few extra dollars from Blue Cross might not be worth it if you have to pay for an extra clerk to negotiate payments
2A) Doctor’s don’t have to accept Medicare payments. But 2B) are I believed not allowed to charge extra. I am sure it happens.
While there are plenty of real and anecdotal cases of doctors turning away new Medicare patients, the generally high approval ratings that seniors give Medicare show that they are managing to see someone, after all in toto we are talking huge amounts of money. someone will be there to take it in the end.
Besides the underlying argument that theoretical longer wait times for people with current insurance justify denying medical care to the 30 million who would gain access to it, is morally shaky.
Jack this is Bruce.
Well there are a lot of buried assumptions there about Efficient Markets vs the older concept of What the Market Can Bear. At some level you would have to figure in that “market value of the cost of providing the service” includes not just the premium on the mal-practice but the premium on the Jag in the Doctors’ parking lot, and the cost of a premium set of golf-clubs and green fees at that private course.
From the outside “market value” seems to be no more than an artificial concept to allow you to calculate a figure for the charitable care you have to write off to maintain non-profit status, there is certainly no semblance of a real arms-length market transaction going on nearly anywhere in the medical system except maybe at the very top end.
Essentially the various medical professional societies exercise their own system of tariffs and barriers to entry in the interest of income maintanence, it just happens they have been markedly more successful than that than in most of the rest of the world, just as American CEOs have.
1) yes, but that already happens
2) generally no, it is illegal in most circumstances, legal in some, requiring additional consent paperwork
Historically Medicare paid less than private insurers, and the feds encouraged that as a “cost shifting” mechanism. There was no benefit for the privates
Recently (15 years or so) private payers have been grdually moving down closer to Medicare.
Medicaid rates are generally substantially below Medicare rates.
The Medicare rates are supposed to take into account physician costs and productivity units (RVUs, RVSBS).
The Sustainable Growth Rate formula installed in 1999 regularly calls for cuts in Medicare physician reimbursments, but so far Congress has passed an annual suspension of the rule. If Congress does not act by April 1 a 21.% average rate cut take effect (increases or cuts vary by specialty).
This is a very brief nutshell.
Slate last year had a good article on the history and problems with the relative value scale on which payments to physicians are based:
http://www.slate.com/id/2227082/
“If the private insurers are really that efficient let them show it at standard Medicare premiums”
In calculating “Medicare’s efficiency”, are we including the $80 billion per year that is lost in Medicare fraud or the lack of quality doctors accepting Medicare patients due to the program’s pathetic payment levels?
IMO, anyone who says a government can provide health care, directly or indirectly, more efficiently than free markets is really just covering-up for their push for socialized healthcare.