“Unless hospitals are committing fraud in their reporting to Medicare, their rates cover their costs and profit. To then complain that getting paid more than double that is a “hardship” is laughable” -Dave Chase
By Bill Rusteberg
We’ve heard it and so have you……….hospitals lose money on Medicare. Google “Do hospitals lose money on Medicare?” and the results will gift documented authority to claim “Hospitals lose money on Medicare because I read it somewhere.”
If hospitals lose money on Medicare yet continue to take Medicare patients, how do they make up the difference? The logical answer is they charge the rest of us more. A lot more.
This was illustrated early on when we first started Reference Based Pricing strategies in Texas in 2007. In a frank discussion within earshot of no one I was admonished by an Austin based provider relations rep. for UHS “Bill, why would we take 100% of Medicare when we get 350% from Blue Cross?”
So what is the truth? Do hospitals really lose money on Medicare and is that why we pay more for health care? I asked a former hospital administrator of Shannon Medical Center in San Angelo, Texas that question. “Bill, any hospital administrator who fails to make a profit off Medicare won’t be a hospital administrator for long, his board will see to it! As to the second part of your question the answer has to be yes because the predicate as stated so often becomes factually believable in the minds of the general public.”
A hospital administrator from Doctors Hospital at Renaissance testified during legislative hearings several years ago on proposed changes to Medicaid. She said their hospital patient mix was 82% Medicaid/Medicare, 14% commercial and 4% charity. She testified to the effect “Any hospital that can’t make profit off Medicaid/Medicare patients is an inefficient hospital. We are a profitable hospital.”
Dave Chase, the founder of Health Rosetta disagrees. A hospital doesn’t need to be efficient.
“Unless hospitals are committing fraud in their reporting to Medicare, their rates cover their costs and profit. To then complain that getting paid more than double that is a “hardship” is laughable. I spent years inside hospitals finances as a consultant. With very few exceptions, they’re rolling in the dough while being incredibly inefficient. It’s remarkable how they’ve managed to perpetuate the narrative of “losing” money on Medicare. Have to hand it to their PR/marketing departments & lobbying arms for pulling that off. The consequences couldn’t be more devastating for the middle class.”
A lot has changed since we first started Reference Based Pricing in 2007. In the early years hospital pushback was a problem requiring plan sponsors to imbed expensive legal assistance programs in partnership with companies like ELAP and AMPS and others. Plan sponsors were routinely threatened with legal action, plan members were turned away for non-emergent care or subjected to aggressive balance billing tactics in cases they weren’t.
Yet, an early tell took place at St. Davids Hospital in Austin. In 2007 a plan member seeking non-emergent care was turned away. The hospital refused to accept a Reference Based pricing payment of 120% of Medicare. They considered the patient a self-pay patient instead. So we called St. Davids and asked what the cash price was for her procedure. It came out to about 80% of Medicare so we paid it. We paid less than what we were willing to pay in the first place. From that point forward we wanted every hospital to turn away our patients as it was good for all parties involved.
Now, almost twenty years later, it’s a different world in many parts of Texas.
Hospitals are not as aggressive as they were in the past. Depending on the geographic area, most hospitals accept Reference Based Pricing patients and cash reimbursement checks. Balance billing occurs less than 2% of the time and most are for relatively small amounts. And most importantly hospitals are seeking and/or accepting direct agreements with plan sponsors using Medicare as the pricing benchmark.
We have negotiated direct hospital contracts ranging from 100-130% of Medicare with none of the typical managed care outliers such as stop loss provisions, escalator clauses and carveouts.
Just last week we learned of a hospital willing to accept 80% of Medicare for cash-pay transactions in favor one of our clients. This same hospital back in 2007 refused to accept the plan’s payment of 120% of Medicare and set loose their legal attack dogs against plan members, dinging credit and threatening lawsuits.
So the question remains:
Why are some hospitals now accepting 80-100% of Medicare? If they are losing money at these rates as is the common belief (just ask Google) who is being charged more to make up the difference?
Meanwhile 98% of self-funded plan sponsors continue to attach to managed care contracts pegged at +200% of Medicare and more, or worse, discounts off imaginary numbers, complete with stop loss provisions, escalator clauses and carve-outs.
So the second question is:
Why are most plan sponsor so dumb?
Homework Reading Assignment: Fuzzy Math Cost Accounting
