Are the Health Plans that Non-Profit Insurers Sell Less Expensive Than Those Offered by For-Profit Companies?

Below, a guest-post by Kev Coleman, Head of Research and Data at HealthPocket.  His latest study comparing the costs of for-profit and non-profit plans can be found here .

Sometimes I groan after I complete a piece of research, knowing that the results may be seized and simplified by either end of the political spectrum .

Nevertheless, I went ahead and decided to compare premiums and out-of-pocket limits of nonprofit vs. for-profit health plans. This task is easier said than done. First, health plans vary with respect to their benefits and premium comparisons aren’t especially meaningful if there are significant disparities in covered medical services among plans. Consequently, I had to define a minimum set of benefits in order to get a decent representation of both nonprofit and for-profit plans that were similar to one another. Plans that didn’t meet the criteria weren’t included in the study.

 Another problematic issue for premium comparisons is that there is a relationship between deductible amounts and monthly premiums: higher premiums often mean lower deductibles.. Comparing premiums between plans with wildly different deductible amounts isn’t fair. This issue led me to establish deductible ranges; comparisons between the plan types were performed only within those ranges.

 Finally, there was the issue of location. Health insurance premiums are strongly influenced by region. This influence exerts itself on several fronts: state-specific insurance regulations that have to be satisfied;  local level of competition in the market; and the medical claim trend for people living in the region. Accordingly, the premium comparisons were performed inside selected metropolitan regions and never between differing regions. Six cities were chosen as regions for premium comparisons, two from the east coast, two from the west, and two from the center of the country.

                                              Results of the Study

 The results? I found that in 47% of the comparisons a city’s nonprofit plans had the lowest average premium within a particular deductible range. For-profit health plans had the lowest premium in 39% of comparisons with the remaining 14% classified as ties since the differences between the nonprofit and for-profit averages were less than 3%.

An examination of out-of-pocket limits for these nonprofit and for-profit plans yielded similar results: Nonprofits had the lowest average limits on out-of-pocket costs in 56% of the comparisons. For-profit plans had the lowest average limits in just 28% of the comparisons.

What should we conclude based on these results? If you have strong political convictions, I can see several ways the data could be spun,  particularly given the thorny issue of tax advantages that some nonprofit plans enjoy. For myself, I satisfy myself with a modest set of conclusions and let the politicos fight about the rest:

 1) Nonprofit health plans are more likely to offer a lower premium than for-profit health plans

2) Removing a profit incentive from health plans as a means to make premiums more affordable cannot be supported by my study’s results since in over half the comparisons nonprofit health plans did not have the lowest premium

3) Nonprofit plans are more likely to have superior out-of-pocket cost protections than for-profit plans

 It will be interesting to revisit the nonprofit/for-profit premium comparisons once the new Affordable Care Act plans are released. The Essential Health Benefits will effectively commoditize plans and health status will no longer be a factor in availability or price of coverage. As a result, so premium differences and provider networks could assume greater importance to consumers shopping for health insurance.

 One of the issues not addressed in this study is the question of health plan quality (e.g. clinical outcomes, customer satisfaction, adherence to best practices, etc.). Health plans are more than premiums and the lowest cost plan might not be the wisest consumer choice if quality scores are unacceptably low. I plan on analyzing the same plans used in this study from the perspective of their quality scores to shed some light on the relationship of quality to the premium differences discovered.

Note from MM: — I am glad that Coleman  ends by emphasizing that consumers need to consider quality as well as price. If insurance doesn’t protect you, it’s not worth the money, no matter how low the premiums.

As it happens, I began comparing the quality of non-profit vs. for-profit insurance plans a  couple of weeks ago, and will be publishing a post on the topic in a few days.  I’ll invite Coleman to come back and report on his results as well.



20 thoughts on “Are the Health Plans that Non-Profit Insurers Sell Less Expensive Than Those Offered by For-Profit Companies?

  1. I’m glad that Coleman makes the point that removing the profit incentive does not automatically result in lower premiums according to his study. Technology and scale are increasingly important in both health insurance and healthcare. It’s quite possible that the largest for profit insurers are more efficient than the non-profits in the administrative cost centers that they have in common such as medical underwriting, advertising, marketing, call centers, nurse hotlines, etc.

    There can also be differences in the size and cost of the risk pool from one insurer to another. I’m assuming that Coleman is focusing on the cost of individual insurance policies as small and medium size group policies tend to be priced based on the group’s own medical claims experience while large groups usually self-insure.

    Finally, if Kaiser was one of the non-profits studied, it is both an insurer and a (large) medical provider with its own hospitals and employed physicians. That’s a different model. In a market like Northern CA where HMO’s were well accepted for years, this approach should result in lower costs as the combined insurer and provider network has greater control over much of the continuum of care than a traditional insurer, either for profit or non-profit, does.

  2. Barry–

    Good to hear from youl
    I agree that Coleman’s analysis is excellent. The way he adjusts for disparities takes us to a new level. This is why I have asked him to guest-post on HealthBeat–I greatly admire his work.

    I don’t think he is just looking at plans in the individual or small biz market– see his post on his blog.

    But as he points out, in order to complete his comparison, he has to look at the quality of the plans being compared–the value that we’re getting for our heatlh care dollars.
    I am eager to see his next post. (And I’m hopeful that he will write a version of it for HealthBeat. He doesn’t just “cross-post” here- he writes a post for us. And I link to his original post on his blog. )-

    On Quality, Barry– please see my newest post (at the top of this page) where I tackle that problem, comparing the quality of non-profit and for-profit insurers.

    Also, it’s important to realize that Kaiser is not just in the Northwest. It’s now in 7 or 8 states–including Georgia, where when it comes to quality and customer satisfaction, Kaiser ranks at the top of the list.

    Meanwhile, Harvard Pilgrim, another excellent non-profit that I know you
    agdmire, is expanding into Ct.(now a market dominated by for-profits)
    I expect that within a few years Harvard Pilgrim and other non-profits will take over what was once an over-priced for-profit jmarket.
    Tufts (another non-profit) also is expanding it’s New England franchise.

    I can only hope that, in the next few years, one of the top
    non-profits will move into NYC. (Though hospitals here will do everything they can to block them. A strong-non profit would be able to refuse to over-pay NYC’s over-priced “brand-name” academic medical centers. )
    Finally it’s worth noting that in California, all of the insurers in the Exchanges have refused to include LA’s celebrity hospital (Cedars Sinai) in their networks. It is notoriously expensive and quality is not highly rated. (Search Cedars Sinai on HealthBeat.)

    Meanwhile the insurers in the California Exchange do offer a broad range of providers–80% of California’s doctors and hospitals are included in their offerings. (And my guess is that, as providers realize that insurers are now able to push back against overpricing, more will agree to join these networks.)
    I have long felt that insurers could either be part of the problem–or part of the solution.
    As they become part of Accountable Care Organiizations, I am hopeful that more insurers will become part of the solution. Certainly, it is already clear that non-profits are becoming part of the solution. The pricing in California–and Oregon–makes that clear. Also, Vermont has annouced prices–no “sticker shock” there either.

  3. Maggie –

    I know that Kaiser operates in a number of other markets besides CA. However, according to a recent article in Health Affairs, fully 7 million of its 9 million members are in CA. No matter how good Kaiser is or claims to be, its business model is simply not nearly as well accepted outside of CA as in CA. Hopefully, that will change over time as more people wind up with tiered network and narrow network insurance products.

    Measuring the quality of anything in healthcare and health insurance is a tricky business. With respect to preventive care, even if it’s offered, people have to actually get the tests. For effective disease management, patients have to fill their prescriptions and take their medications and adhere to a sensible diet and exercise regimen.

    Heart disease and cancer account for almost half of all deaths each year in the U.S. Those are the two diseases that people fear the most along with Alzheimer’s and dementia. If I need heart surgery or cancer treatment, I want to know that I can go to a regional center of excellence. One of the concerns about HMO’s is that the top hospitals for these diseases may be out-of-network because they are usually more expensive per service, test or procedure. This includes places like Mayo Clinic, M.D. Anderson and the Cleveland Clinic.

  4. Barry–

    First, California is the most populous state in the country. So of course a large percentage of Kaiser’s members are Californians.

    More importantly, Kaiser is usually not the cheapest plan in a state– it doesn’t sell “junk insurance” (It didn’t begin selling high-deductible insurance until aroudn 2003, and then only reluctantly, because it had to in order to compete with California for-profit insurers who sold high-deductible plans to many low-income people, knowing they wouldn’t be able to afford to use the insurance except in an extreme circumstance.)
    In a poor state like Georgia, many people and employers can only afford the cheapest insurance available.
    Now, with the advent of subsidies, that will change. IN a state like Georgia well over half of the people in the Exchanges will receive tax subsidies and will be able to afford Kaiser.
    As for HMOs, I very much doubt that the Minnesota Exchange will exclude Mayo.
    And in California, Kaiser has managed to reduce fataltiies from heart disease- Northern California is the one region in the U.S. where heart disease is not the leading cause of death.
    80% of hospitals will be in the California Exchange. Cedars Sinai won’t be–and this is not a loss. When Leap Frog rated hospitals for patient safety earlier this month, Cedars Sinai got a “C.”
    Nearly all of the Kaiser hospitals got A’s.

    What many people might think is the best hospital for heart surgery may or may not be truly excellent. Most hospitals don’t make outcome, safety and infection rate data available (though that will be changing.)
    The Exchange officials deciding which hospitals to admit to networks are looking at networks, medical evidence (as available) and price. Typically, some of our most expensive hospitals (like Cedars Sinai) are not our best. They focus on cosmetics, and their “rain-maker doctors” are allowed to do as they wish (not wash their hands, ignore evidence based medicine, etc.)
    I am told that this is why Manhattan’s “Mt. Sinai” hospital has the highest infection rate in the city– and among the worst infection rates in New York State. (This could have changed –though I doubt it. My information is about a year old.
    If you look at the NCQA ratings, who will find that HMOs score better than PPOs (that let you go out of network) both for quality adn for customer satisfaction.

    The idea of “consumer choice” (everyone picking the hospital they want to go to ) is highly over-rated. We know that consumers often make very poor choices–whether picking stocks, mutual funds, or hospitals. When it comes to hospitals, they judge based on appearance, the rooms, the food, convenience etc. As one hospital CEO told me, “Our patients have no way of knowing whether the care they are receiving is excellent, good or mediocre. They also have no way of knowing if they are safe.”
    HMOs are the future. The only way that payors can keep a lid on unreasonably high prices is to leave some hospitals out of their networks–until those hospitals recognize that they cannot charge 30% more than others for the same procedure.

  5. Maggie –

    What you discuss in your last comment is a big reason why I have been an advocate for robust user friendly price and quality transparency tools for both patients and referring doctors since I started participating in healthcare blogs in early 2006. We need quality metrics that encompass process, outcomes (preferably risk adjusted), safety and patient satisfaction. We also need disclosure of actual contract reimbursement rates so both patients and referring doctors can easily identify the most cost-effective high quality providers in real time. Incredibly, I recently learned that confidentiality agreements that preclude disclosure of contract rates were originally put in place to prevent price collusion among doctors. Price transparency is routine and taken for granted in every other field of commerce.

    As Pat S. discussed on your blog some time back, community hospitals and doctors do common things commonly everyday and these common things account for the bulk of healthcare costs. If I need an MRI, a colonoscopy, or my gall bladder removed, I would gladly go to the least expensive local facility that can do the job competently and safely. I’ve always been one of those relatively rare patients who care about healthcare costs even when taxpayers or insurers are paying the bill.

    However, if I need an organ transplant, treatment for a rare cancer, neurosurgery or a sophisticated heart procedure, I want to go to a regional center of excellence even if it’s more expensive than other hospitals that claim to be able to handle it. Hospitals like Massachusetts General and Brigham & Women’s probably really are the best in the region at some of these. Patient outcome and safety data would be enormously helpful here for sure.

    That all said, I am also a fan of tiered networks as I think you know. For patients who insist on going to a brand name hospital for relatively routine care, at the very least should be required to pay significantly higher co-pay. If they can’t afford it, too bad; they shouldn’t be going there in the first place. On the other hand, the brand name hospitals should be in the preferred tier for those procedures that they really are the best at.

    • Barry–

      Thanks for your comment. You raise impt. points.

      First, oOn why provider prices are not readily available:
      Some doctors (and the AMA) as well as most hospitals have fought price disclosure because they don’t want people to know which providers are charging more (i.e. ” gouging”). This is not about gov’t preventing price collusion.

      As Dr. George Lundberg (former editor in chief of JAMA) has told me, he saw specialist prices sky-rocket following passage of Medicare in the Sixties and early Seventies because docs knew they could charge whatever the market would bear.

      “When a new doc came to town, he quickly found out what specialists caring for similar patients (wealthy patients vs. middle-class patients) was charging in that town,” Lundberg told me.

      “The new specialist would then charge somewheat more” Lundberg explained. “Patients assumed that if he’s more expensive, he must be better. Other specialists raised their prices accordingly.. (They didn’t want to be seen as less expensive/ not as good.) ” This Lundberg explained , “is how specialists’ fees spiraled from the 70s through the 80s.”

      Bzffy — This had nothing to do with the governnment trying to prevent collusion.

      One might well ask: How did dcos in that town know what other docx in their specialty were chagingfD?

      Cocs and their spouses socialize together and share info–(even though they didn’t share price info with patients.)

      Most businessmen dont’ share pricing info with rivals, but doctors see themselves as part of a collegial professional community, a fraterntiy, if you will: : “He went through med school and the hell ofresidency, as I did–we’re brothers.” (This is why docs also don’t report on
      incompetennt doctors.They feel great sympathy and loyalty to their brother docotrs–much like the loyalty among policemen.)

      AS for the hospitals in HMOs, you write: ” if I need an organ transplant, treatment for a rare cancer, neurosurgery or a sophisticated heart procedure, I want to go to a regional center of excellence even if it’s more expensive than other hospitals that claim to be able to handle it. Hospitals like Massachusetts General and Brigham & Women’s probably really are the best in the region at some of these. Patient outcome and safety data would be enormously helpful here for sure.”

      Barry- Mass General is , in fact, not as good as many believe. (Though many wealthy people swear by it It has the brand-name reputation. I have met wealthy people in N.Y who go to Mass Gen for their annual $2,000 “exectuive check up’ (medical evidence shows it does no good.)

      But that is not what is most important here: in LeapFrog’s most recent evaluation of patient safety Mass Gen got a “B” Over 70% of Massachusetts hospitals got an “A”
      Why woud you want to go to Mass Gen.?
      Brigham & Women’ is far better. (But most people have never heard of B&W. They also have never heard of Atul Gawande–or read any of his articles in the New Yorker.

      My bottom line: After the Exhanges announce their insurers–and their insurers annouce who are in their networks–it would be well worth talking about whether the (mainly non-profit) Exchange insures are leaving out the “best” hospitals

      My guess, is that, by and large, they will not. (Assuming that we rate “best” based on medical science.)

      And if a few Exchanges do a poor job of picking insurers, I would predict that public protest would change things within a year–if not sooner.

  6. One very important issue that needs to be addressed by regulators and/or legislators is how much to pay for care delivered under emergency conditions by non-network hospitals. Many hospitals get 50% or more of their inpatient admissions through the emergency department. If the patient needs expensive emergency care and the hospital is not in his or her insurance network, both the patient and the insurer could be subject to much higher charges than would be due if the hospital were part of the insurer’s network and thus had a contract with it. I’ve long suggested that there needs to be a reasonable limit on how much hospitals can charge for care delivered under emergency conditions. Perhaps something in the area of 140% of Medicare might be a reasonable amount under these circumstances. In New Jersey, uninsured patients with income at or below 500% of the federal poverty level (FPL) cannot be charged more than 115% of Medicare though many commercial insurance contracts pay more than that at least to some hospitals in their network.

    Another issue related to emergency care is how quickly and easily a patient can be transferred to a nearby network hospital and who is empowered to make that decision. The original hospital presumably doesn’t want to give up revenue, patients and insurers don’t want to be subject to excessive charges, and assuming the patient can be safely transferred, the receiving hospital needs to be able to treat the patient’s disease or condition competently and safely.

  7. Good point, Barry.

    Out of the 2000+ pages of the ACA, and its many valuable provisions (some of which I am still reading for the first time), I do not think that this major pricing issue which affects thousands of families was ever even discussed.

    If you go onto public blogs about health care bankruptcies and horror stories, the price gouging around emergency care is a very prominent item.

    Was this never made part of the ACA because:

    a. Obama agreed in advance to let hospitals alone?
    b. The bill was written by academics and congressional staffers who never have this problem in their own lives?
    c. Doctors and hospitals are major contributors to both political parties?
    d. The issue of insurance company network contracts is extremely complex?

    I am sure I am missing something.

  8. Bob –

    I’m in the process now of reading a summary of what to expect from Obamacare in the latest issue of Philadelphia Magazine which is based on discussions with medical experts in the region.

    Regarding emergency care, insurers cannot charge members a higher co-pay at an out-of-network hospital than they would pay to an in network hospital. However, the out-of-network hospital is allowed to balance bill the patient for any difference between what the insurer paid and what the hospital claims it is due. Previously, at least some states outlawed balance billing under these circumstances.

    As I’ve said many times, we need special rules for how much out-of-network hospitals can charge patients and insurers for care that must be delivered under emergency conditions. If it were up to me, an upper limit of 140% of Medicare should be more than adequate. This is the amount that New York State now allows as fair reimbursement for out-of-network doctors. I don’t know whether or not the doctors are allowed to balance bill patients for charges above that amount.

  9. Bob & Barry–

    The ACA does address emergency care and out of network emergency care–in some detail. (There really isn’t much that the ACA doesn’t address– that’s why the bill is so long.)
    Here are the rules:

    The Affordable Care Act (ACA), or federal health reform, provides new protections for insured consumers who receive out-of-network emergency care.1
    Which plans does the new ACA rule apply to?
    This rule applies to health plan years starting on or after September 23, 2010, including self-insured, fully-insured, and individual market plans. It does not apply to grandfathered plans.
    What protections does the rule offer a patient going to the emergency room?
    A plan that covers care through a hospital emergency department may not:
     Require preauthorization for emergency services
     Add additional administrative requirements for out-of-network emergency services
     Charge higher copays or co-insurance for out-of-network emergency services
     Limit coverage for out-of-network emergency services more than it limits in-network emergency services.
    The rule also applies to care provided by an out-of-network provider at an in-network facility.
    How much does the plan pay out-of-network providers?
    The plan must pay an out-of-network emergency department at least the greatest of:
    1. The amount it pays in-network providers;
    2. A payment based on the same methods the plan uses to pay for other out-of-network services (for example, a percentage of usual and customary fees in the region); or
    3. The amount Medicare would pay for that service.
    What does the patient have to pay?
    If a patient goes to an in-network provider, they pay the co-pays and co-insurance the plan requires.
    If they go to an out-of-network provider, they pay those co-pays and co-insurance, plus any other costs (like deductibles) that generally apply to out-of-network services under the plan. Unfortunately, the hospital is allowed to balance bill an out-of-network patient for the difference between what the plan pays (see above) and what the hospital charges.
    What qualifies as emergency services?
    Emergency services include a medical screening exam and treatment to stabilize a patient with an emergency medical condition. An emergency medical condition is “a medical condition manifesting itself by acute symptoms of sufficient severity (including severe pain) so that a prudent layperson, who possesses an average knowledge of health and medicine, could reasonably expect the absence of immediate medical attention to result in placing the health of the individual (or, with respect to a pregnant woman, the health of the woman or her unborn child) in serious jeopardy; serious impairment to bodily functions; or serious dysfunction of any bodily organ or part.
    Special New York State law protections for HMO enrollees:
    Enrollees in HMOs regulated by the New York Department of Health cannot be balance billed for out-of network emergency services.2″

    I agree that the fact that hospitals (and doctors\) can “balance bill” is extremly unfortunatel. But as you see they can’t do it for out-of- network emergency services in New YOrk. (Health care regs in New York State are far more enlightened than in most states.
    I don’t know how many other states have laws like New ork’s-or may pass them in the future. .
    Why didn’t the Affordable Care ACt outlaw balance-billing in emergency situations?
    Doctors, and the AMA, as well as hospitals fought hard to keep balance billing.
    I actually had a prominent cardiologist in NYC explain to me: “I really don’t think reform will have much effect. Medicare could reduce fees for some tests adn procedures, but I’ll just balance-bill my patients, and they’ll have no choice but to pay what I ask.”
    I tried to point out to him that since half of all Medicare patients have total annual income of less than $21,000
    most would not be able to pay “whatever I choose to charge.” and just wouldn’t come to him.
    He grinned: “My patients will.”
    He then tried to set me up for 5 hours of cardiac testing at a testing facility. (I have never had a heart attack or even angina.)
    When I was leaving, I asked the nurse who owned the testing facility. “Oh, the doctor does.”
    I canceled the tests and never saw him again.
    Probably there are many doctors like him in Manhattan who plan to balance bill wealthy patients. But there are not enough wealthy seniors (even in Manhattan) to keep all of these guys in business.
    They may be in for a rude awakening–especially if consumemr advocates begin to write about balance billing–and the doctors and hospitals who don’t do it.

    Finally, this is an area where HHS is likely to issue regs.

    Already, regs have come out that prohbit balance billing among patieints in the PCIP pool (patients with pre-existing conditions who haven’t been able to get insurance. To help them temporarily (until full reform kicks in in 2014)there were put in PCIP pools

    Finally, Bob, No, Obama didn’t “decide to leave the hospitals alone.” In fact, under the ACA, the “updates” (adjustments for regular inflation in costs of labor, etc.) are going to be reduced by 1% a year every year for 10 years. 1% compounded over ten years represents a large amount of revenue., The ACA does this to put hospitals under some financial pressure so that they will begin to tighten their belts and cut waste.

    HMOs that I am familiar with do not charge a higher co-pay if you go to an out-of-network ER– and it turns out to be a real emergency. (This is based on diagnosis.) But, of course, I am in New York.

  10. Barry–

    Just to clarify one point: you write that “in the past” some states banned balance-billing by out-of-network ERs.

    Those state laws will still apply–trumping the Affordable Care Act. In New York, balance-billing in these situations will not be allowed.

    In general, the reformers who wrote the ACA made sure that if some more enlightened states prohibited over-charging, those state laws would stand–even if reformers couldn’t get the votes to make those regs apply nationwide.

    For instance, under the ACA, insurers can still charge Americans in the 50s and early 60s premiums that are 3 times higher than what they would charge a 30-year old for Exactly the Same Policy. (This represents some progress–today, in some states, they can charge them 5 times more, making insurance totallyl unaffordable for
    But in NY (and a couple of other states) insurers cannot charge a 60-year-old more than it charges a 30-year old.
    And under reform, this will continue to be the case.
    (I favor this equal treatment regardless of age because eventualy most of us will become old. I was happy to pay into Medicare and SS when I was younger, knowing that when I grew older, a younger generation would help me.
    Only a small percentage of this country’s seniors are wealthy- the vast majority have significantly less income than they had when they were working. And these days, few have pensions. So they are living in SS and whatever they were able to save while raising children. For middle-income Americans that’s just not enough to provide financial secruity if you have the good luck/bad luck to live to 80.
    Even those middle-class boomers who did their best to put money into a 401-k or IRA every year are winding up with less than they would have had if they had a good (defined contribution) pension.
    As you well know, most people don’t have the skills, knowledge, temperament or time to manage money.
    And throughout the 80s and 90s, the financial press didn’t help.
    I’ll always remember the front page Wall Street Journal article that began: “Real men buy stocks.”
    Right. Only a small percentage of professional money-managers are truly good/great “stock pickers’. The best of the rest rely on indexing, diversification, etc.

  11. Thanks for the clarification.

    Still, by my standards, if the ACA still allows balance billing in any state, then Obama was leaving the hospitals alone.

    In many areas of health care, as you point out, we allow state sovereignty even when people are greviously harmed.

    We need the equivalence of a Civil Rights law in health care billing, where federal standards simply overpower the corruption and coddling of individual states– just like the 1960’s in race relations.

  12. Maggie –

    Assuming an insurer pays an out-of-network hospital somewhere between the Medicare allowance and what it pays local in network hospitals, out-of-network hospitals in most states that allow balance billing could, in theory, bill the difference between its astronomical chargemaster rate and what it received from the insurer and the patient’s coinsurance and deductible if any.

    Chargemaster rates can easily run to 10-20 times the Medicare allowance and sometimes even more. I don’t know how many other states besides NY prohibit balance billing for emergency out-of-network care but this is a huge potential issue for most people in the commercially insured population. It needs to be addressed on a nationwide basis and soon.

  13. Bob–

    As I explained, you are very wrong about Obama “leaving hospitals alone.”

    Please read my entire reply to your comment. Hospitals are very, very unhappy about how the Affordable Care Act will trim their revenues, penalize them for preventible mistakes, publicize their infection rates, refuse to pay for avoidable readmissions, etc. .

    Finally, do you understand that neither Obama nor the Democrats in Congress had control over what parts of
    “Obamacare” would pass?

    It didn’t matter what Democrats put in the bill– Republicans (and the lobbyists representing everyone in this nation who makes money on healthcare — had the power (and money) to make sure that there just would not be enough votes to pass some of the things that the Obama administration most wanted.

    (For example, a public option.)

  14. Barry–
    Unfortunately, in many states lobbyists are even
    more powerful than they are in D.C.
    Hospitals and their lobbyists are powerful because they represent so many jobs.
    This is why many hospitals can get away with over-charging in so many ways.
    At some point, I hope we will have true campaign reform– much shorter, much less expensive elections, jail time (not just fines) for those who break the rules.
    Then, and only then, will we be able fix some of the egregious examples of greed in our health care system.
    In the meantime, we’ll have to hope that CMS and the Secretary of HHS to use some of the power the
    Affordable Care Act gives them to go around Congress. (In many areas it’s just not clear how far HHS can go in issuing regs without getting approval for Congress. But there are many sentences in the ACA which begin “The Secretary of HHS may . . . “

  15. Good points, Maggie, but I am puzzled by the meaning of reducing the updates.

    Without good control of utilization and upcoding, it seems that hospitals can increase their revenues regardless of the annual updates.

    Moving a heart case from observation to surgery can overwhelm an awful of 1% reductions, I think.

    thank you

  16. Bob–
    Increasingly, hospitals are going to be paid not for what they do, but how they do it. Rather than paying for volume (number of surgeries) Medicare will be paying for better outcomes at a lower cost.
    Some hospitals have already signed contract wtih private insurers whcih require that they achieve better outcomes at a lower cost or “lose millions of dollars” (I am quoting Dr. ATul Gawande who was talking about his hospital,
    Brigham & Women’s in Boston.
    Medicare will be using medical evidence to predict what expected outcomes and cost would be for a group of patietns in a particular DRG (diagnosis)–based on past experience– and then will be looking for improvement in both areas.
    Also,, since hospital margins are frequently 2% or 3% , paring updates by 1% a year for 10 years is a big deal.
    In addition, hospitals know that they will face financial penalties if they have an unusually high rate of readmissions, and if there are too many preventable errors. (Medicare just one pay for the treatment or second surgery needed to repair the error.)
    Finally hospitals know that doctors who create “medical homes” for their patients will be paid More if they keep those patients out of the hospital.
    In sum, hospitals face much lower revenues. They will have to become more efficient–or close. I assume some will close, and this is a good thing. In many areas we have too many hospital beds , and in health care supply creates demand.(“Build the beds and they will come.” Unsafe hospitals should be closed

  17. Maggie –

    While I strongly support the effort to move away from the fee for service payment model and find ways to pay for value and not just volume, I think the issue of penalties for too many readmissions within 30 days of discharge needs some refinement and modification.

    Hospital executives and doctors will tell you that many readmissions within 30 days are not the hospital’s fault. The patient may be back for an accident like a fall in a nursing home or a completely different medical issue unrelated to the original admission or may have been clearly non-compliant with the discharge instructions. Sometimes a readmission within 30 days may even be planned as part of the necessary treatment such as for a second surgery that can’t be done at the same time as the first one.

    I know that from a payer perspective, either the patient was readmitted within 30 days or he wasn’t which is easy to determine and administer criteria but it’s an unreasonably blunt instrument, in my opinion.

  18. I used to work in a nursing home, and I am utterly baffled at how Medicare will be able to measure ‘outcome.’
    If surgery is done on a bowel obstruction for a very frail patient, some will experience great relief and others will die a month later anyways.

    So it is probably a good thing that I am not in charge of Medicare. What I would do is to adjust all the fees to an overall budget. If hospital spending exceeds the annual target, then every single claim is reduced as needed. In a worst case budget scenario, all non-emergency surgeries would be cancelled in the last month of the fiscal year.

    However, HHS is not beating a path to my door. I favor a heavy handed approach called writing smaller checks.
    At various points, Canada and Germany have done exactly what I am proposing.

  19. Barry–
    Hospitals will be penalized for “preventable” readmissions.
    Analysis of readmissions shows that 2/3 are preventable.
    The problem is not a fall, or a new problem (which woudl be a different DRG) but simply that patients didn’t get hte information they needed at discharge and there was no
    Hospitals have already discovered that higher nurse to patient ratios lower preventable readmissions–and lower
    preventable errors. Too many hospitals have tried to save money by understaffing.
    Just by paying attention to readmissions, many hospitals already have begun to reduce them dramatically.