Medicare Compliance & Reimbursement
Cuts Cut Both Ways, Hurt Hospitals And Private Payers
Health plans having a hard time controlling rising costs are getting no help from the government.
A new report commissioned by Blue Shield of California and conducted by actuaries at Milliman Inc. shows that hospitals are increasing the rates charged to commercial health plans in order to make up for the low rates they receive from Medicare and Medicaid.
And with state and federal budgets tight, more cuts to the entitlement programs are expected - and that means more costs will be shifted onto health plans, employers and consumers.
Blue Shield commissioned the report because it believed the trend was accelerating, but there were no industry or government reports tracking it, explains Blue Shield of California CEO Ken Wood. The report found that in 2000, 3.6 percent of the company's premium was "a hidden tax" - Woods' term for an increase that was necessitated by cuts in government programs. In 2004, the report found, the "tax" had risen to 9.5 percent of the premium.
The report looked at data 354 California hospitals had submitted to the state and found that they lost 26.5 percent on Medicaid patients and 16.7 percent on Medicare patients during 2004. In contrast, they earned a 26-percent profit on privately insured patients - a sure sign that they are going to private plans for the money they can't get from the government.
"Hospitals are very up front about saying, 'We've got to get all of our profit from you guys since we can't get any from Medicare,'" Wood recounts. He says hospitals are showing up at the negotiating table with requests for 25-30 percent annual payment increases.
As a result of this cost shifting, insurers have to charge higher premiums to make up for the higher prices hospitals charge them. As premiums rise, more employers drop coverage, which results in more people without coverage, which means more people on Medicaid, which perpetuates the cycle, says Allen Dobson, senior vice president at The Lewin Group in Falls Church, VA.
The only way to change this would be for policymakers to take a good hard look at the overall health care financing system, and that's something they're reluctant to do, according to Dobson.
"We've got ourselves into a world of hurt here with the underfunding of these programs," Wood says. Policymakers don't realize that cutting Medicare or Medicaid isn't really a way of saving money, and that the dollars are simply shifted onto plans' and employers' backs, he explains.
The only way to prevent this effect is to increase efficiency or find ways to save real dollars rather than moving them, Wood says.
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