By Doug Aldeen
Oregon recently published the results of a study that confirm that by implementing a cap on facility prices at 200% of Medicare ( IP ) and 185% of Medicare (OP) for its state health plan, costs would eventually decrease. This is a good place to start but there might be another way to look at it as well:
If Oregon is serious about further driving reduction in facility prices, I think you can do even better. I would not start at a global facility price cap of 200%/185% of Medicare. Why? Medicare reimburses each individual facility based upon its specific costs and specific geographic location and not on a global provider market basis. Put simply, 140% of Medicare in Corvallis at facility X may work just fine but 140% of Medicare in Portland at facility Y may inadequately reimburse the facility. In theory, Oregon could still be overpaying.
Instead, Oregon ( and its tax paying citizens) might be better served if each individual facility had the opportunity to EARN up to 200% and 185% of Medicare. It is worth it to run the numbers and reestablish the initial level of the price cap at either the facility’s Amounts Generally Billed (“AGB”) percentage or consistent with its Medicare Payment to Cost Report (“MPCR”) whichever is less;
Here is why:
The MPCR shows what percentage of Medicare payment covers what percentage of its Medicare costs on an overall IP and OP basis as well as on an independent basis between OP and IP. If the facility financials show that 168% of Medicare covers 150% of its costs OVERALL, why should anybody pay 200%? Become efficient and you can earn up to 200%. HCA is the best in the business in this arena. I routinely see where HCA, at 93% of Medicare, covers 150% of its costs. The not-for-profits could learn quite a bit from the publicly traded hospitals about efficiency.
or
AGB (a/k/a “Percentage of Walmart”) is the maximum amount the facility can charge an individual in the event that he/she qualifies either in whole or in part for financial assistance: AGB, 96.7% of the time, is defined as the allowed amounts under both Medicare fee for service and commercial insurance (fully insured/self-funded/self-pay). The AGB in many instances at a number of not-for-profit hospitals can be as low as 8%-9%. In other words, for every dollar the facility bills, it collects 8 to 9 cents. This is the real number inside these facilities that provides a fair profit margin because this is what the facility accepts as payment in full over the majority of its book of business, excluding Medicaid.
“Attention shoppers, there is a blue light special in aisle nine. Two for one CT scans for $199.”
Under either scenario above, each individual facility is being fairly compensated and has room to improve. In addition, this allows the market to compare facility to facility ( like a golf handicap) for cost and quality.
Hospital Facility Prices Declined As A Result Of Oregon’s Hospital Payment Cap | Health Affairs
