Catch Me If You Can: Hospitals, Physicians, and the Game of Medicare Payment Policy

1
Catch Me If You Can Hospitals, Physicians, and
the Game of Medicare Payment Policy

• Department of Health Evaluation Sciences
• University of Virginia School of Medicine
• October 13, 2004
• Rick Mayes, Ph.D.
• Assistant Professor of Public Policy

2
Overview

• This presentation examines
• Larger trends in the U.S. health care system,
  generally, and in Medicare, specifically
• Issues of specific concern to physicians and
  hospitals
• Medicares financial relationship with physicians
  and hospitals and the controversy over increasing
  market segmentation

3
Underlying Medical Inflation The Rise and Fall
(and Rise Again?) of Managed Care
Sources Census Bureau, Kaiser Foundation, CMS,
2004.
4
Underlying Medical Inflation Health Insurance
Premiums

• Since 2001, on average . . .
• 5 million fewer jobs now provide health insurance
  in the U.S.
• the avg. cost of health insurance premiums has
  increased 59
• (versus 10-12 in wages general
  inflation)
• employee contributions for health insurance have
  grown
• by 57 for single coverage (total of
  3,695 annually, 2004)
• by 49 for family coverage (total of 9,950
  annually, 2004)
• avg. premium for family coverage (14,565
  projected, 2006)
• - A growing proportion of the overall increase
  in premiums for employers has been shared with
  employees, particularly those in small businesses.

Source Henry J. Kaiser Family Foundation/Health
Research and Education Trust Survey of Employer
Health Benefits, Health Affairs Sept./Oct. 2004.
5
Health Insurance Premiums Declining Coverage
6
Health Insurance Premiums Declining Coverage
7
Underlying Medical Inflation Affects Medicare
Population
Source CMS Office of the Actuary, 2004.
8
Demographic Trends
Source Medicare Board of Trustees, 2003.
9
Actuarial Trends
Source Medicare Board of Trustees, 2003, 2004.
10
(No Transcript)
11
Medicares new 534 billion Rx Drug Benefit
12
Tom Scully, former CMS Administrator

• I hate this whole G--damn system. Id blow
  it up if I could, but Im stuck with it. If it
  were up to me, Id buy everybody private
  insurance and forget about it. Obviously thats
  what the Republican view is.
• We ought to do the same thing we do for
  federal employees go out and buy every senior
  citizen a community-rated, structured, regulated
  private insurance plan. Let them buy an Aetna
  product, or Blue Cross products. Thats the
  Republican philosophy.
• Why should Tom Scully and his staff fix
  prices for every doctor and hospital in America?
  Which is what we do.
• - Personal interview with Tom Scully,
  Administrator, Ctrs. for Medicare Medicaid
  Services, 2001-2003

13
The Failure of MedicareChoice as a Model for
Paradigm Change
Sources Medicare Health Plan Compare database,
CMS February 2003.
14
Issues of Concern for Physicians Growing
Practice Expenses
15
Liability Insurance Crisis in U.S.
Sources New England Journal of Medicine and AMA,
2003.
16
The History of Medicares Relationship with
Physicians
Sources GAO analysis of data from CMS and the
Boards of Trustees of the Federal HI and SMI
Trust Funds, 2004.
17
The History of Medicares Relationship with
Physicians
Sources GAO analysis of data from CMS and the
Boards of Trustees of the Federal HI and SMI
Trust Funds, 2004.
18
Issues of Concern for Physicians Growing
Practice Expenses
Source CMS, Office of the Actuary, 2004.
19
The History of Medicares Relationship with
Hospitals Maximize Reimbursement First,
Decrease Costs Later
20
Cost-Shifting Hydraulic for Medical Providers
B C MarginContribution
130
B
120
Cost Shift
C
A
110
Cost
100
Shortfall
Margin
90
80
70
Payment-to-Cost Ratio
60
Below Cost Payers
Above Cost Payers
50
40
30
20
10
10
80
90
70
60
50
40
30
20
0
100
Percentage of Market Share
21
Physicians the Role of Cost-Shifting
Source The Lewin Group, The American College of
Emergency Physicians (ACEP) Practice Expense
Study, for the American College of
Emergency Physicians, September 15, 1998.
22
Community Hospitals the Role of Cost-Shifting
Source The Lewin Group analysis of data
contained in AHA TrendWatch Chartbook Trends
Affecting Hospitals and Health Systems, 2001.
23
Source Glenn Melnick, Uninsured Americans,
Hearing Before the Subcommittee on Health of the
Ways and Means, U.S. House of Representatives,
108th Cong., 2nd Sess. (9 March 2004)
Professor Melnicks testimony from the
Center for Health Financing, Policy and
Management, School of Policy, Planning and
Development, University of Southern
California.Technical Note Data are derived
from the Medicare Prospective Payment Systems
Impact File, Centers for Medicare and Medicaid
Services (CMS, 2004), available at
http//www.cms.hhs.gov/providers/hip
ps/ippspufs.asp, last visited October 1, 2004).
24
Source American Hospital Associations Annual
Survey of Hospitals (n6,800 hospitals), 2004.
Pearsons correlation coefficients
1984-1997 Medicare and Private ratios r
-.86 1980-2002 Medicare and Private ratios r
-.74 1984-1997 Medicaid and
Private ratios r -.39 1980-2002 Medicaid and
Private ratios r -.59
25
Source MedPAC (June 2004)
Segmentation of U.S. Health Care System Increasing
26
Source CMS, Office of the Actuary, 2004.
Segmentation of U.S. Health Care System Increasing
27
(No Transcript)
28
Cost-Shifting (or Cross-Subsidization)

• Perhaps best thought of as a lubricant within a
  massive series of financial feedback loops
  between
• - government (Medicare, Medicaid)
• - providers (hospitals, physicians) and
• - private payers (insurance companies,
• employers, patients).

29

• POLICY implications of the significant rise in
  physician-owned ambulatory surgery centers,
  specialty hospitals, and diagnostic imaging
  centers
• 1.) prospects for improved quality, lower costs,
  and more professional autonomy
• - not a new phenomenon (e.g., heart hospitals in
  London 1857, psychiatry clinics, ear
• and eye hospitals, obstetrics gynecology
  hospitals)
• - Adam Smith and the advantages of
  specialization (e.g., pins and focused
  factories)
• 2.) financial impact on community hospitals fair
  or unfair competition?
• - cherry picking the best-insured private
  patients by, largely, for-profit entities
• - skimming lower-cost, healthier Medicare
  cases within individual DRGs
• - cardiac, orthopedic, radiological services
  huge proportion of hospitals net revenues
• 3.) impact on communities overall access to care
• - declining volume smaller patient populations
  make charity care harder to provide
• - vulnerability of emergency services, burn
  units, psychiatric facilities
• - complicates doctor-hospital relationships
  (e.g. staff privileges, economic credentialing)

30
Present Future Concerns

• (1) The ultimate cost shift is both prevalent and
  increasing in scope and degree employers passing
  on a larger and larger share of their increased
  health care costs to their employees . . .
• - higher monthly wage deductions and/or
  increased co-payments,
• deductibles, out-of-pocket costs (especially
  for employees dependents)
• (2) Beyond this strategy, more and more employers
  have simply stopped offering health insurance . .
  .
• - (15 of the U.S. population is uninsured 45
  million individuals or the
• aggregate population of 24 states, Census
  2003)

31
Conclusion How much should the government pay
medical providers?

• TOM SCULLY My frustration is that youre
  trying to be a government contractor. Hospitals
  usually get about 50 of their revenues from
  Medicare Medicaid doctors, on average,
  generally come into practice getting roughly 30
  or so from Medicare Medicaid.
• So if youre a doctor or if youre a hospital,
  fundamentally a big chunk of your business is as
  a government contractor. And your expectation, I
  think, when dealing with the governmentwhether
  youre in the Pentagon or in health careis
  boring consistency, decent operating margins that
  dont flop around. If youre Boeing, you dont
  want to have a 25 margin one year and a negative
  2 the next year, right?
• - Interview with Tom Scully, Administrator, Ctrs.
  for Medicare Medicaid Services, 2001-2003

32
Exit Questions

• (1.) What do providers do (or have to do)
• when each payer only wants to pay the marginal
  cost?
• (2.) Who is ultimately responsible for the
  common good in a competitive market?