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The Growing Gap Between Medicare and Commercial Hospital Payments: Should
We Be Concerned*
Stuart H. Altman Ph.D.Chaikin Professor of Health Policy
Heller School for Social Policy and ManagementBrandeis University
*The 2019 Leinhard Lecture, National Academy of Medicine‐February 27, 2019
Medicare Program Established in 1965
Medicare Beneficiaries Would Have Complete Access to All Approved
Hospitals
Medicare Hospital Payment System
Paid Hospitals Based on a Modified Blue Cross Cost Reporting System‐‐‐Rates Similar To Those
Paid By Commercial Payers
Medicare Hospital Payment System Changed in 1983 to a Pre‐Determined DRG SystemBut Total Hospital Payments Set to Closely
Follow Amounts Paid Under Previous Cost‐Based System
Prior To Passage of 1997 Balanced Budget Act
Medicare and Commercial Hospital Rates Were Similar and Close to Hospital Average
Costs
Hospital Now Paid Significantly Lower Amounts By Medicare and Medicaid
106%
125%
160%175%
100%90% 90% 85%
0%
20%
40%
60%
80%
100%
120%
140%
160%
180%
200%
1996 1998 2000 2002 2004 2006 2008 2010 2012
Pvt Ins. Paytas Percent ofMedicarePayments
MedicarePayt. GrowthRate
Seiden et al, Health Affairs December 2015
Payments in $2012 and adjusted for patient mix and geography
Since 2000 Medicare Hospital Margins Show Steep Declines: Almost All Hospitals Now Lose Money on Medicare Patients (Using Average Total Costs)*
5.50%
2.20%
‐1.20%
‐3.00%‐3.00%
‐4.80%‐6.10%
‐7.20%
‐5.30%‐4.90%‐5.70%‐5.50%‐5.10%
‐5.80%
‐7.60%
‐9.60%
‐11.20%
‐14.00%
‐12.00%
‐10.00%
‐8.00%
‐6.00%
‐4.00%
‐2.00%
0.00%
2.00%
4.00%
6.00%
8.00%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Overall Medicare Margins*
* Still Profitable for Hospitals to See Additional Medicare Patients ( Higher Marginal Revenues than Marginal Costs)
Even Teaching Hospitals Which Had Significant Positive Medicare
Margins Now Show Loses
Only Rural Hospitals With “CAH Payments” Have Positive Medicare Margins in 2013
2.40%3.00%
-2.20%
11.40%
1.60%
-2.10%
-7.30%-7.40%
-3.00%
-2.30%
-7.50%
-10.30%
-5.40%-5.90%
1.20%
-3.60%
-5.00%
-6.90%
-15%
-10%
-5%
0%
5%
10%
15%
2002 2008 2013All Hospitals Urban Rural Inc. CAH Major Teaching Other Teaching Non-Teaching
SO– Should We Be Concerned?
Are Hospitals In Financial Trouble? Are There Winners and Losers With Current
Hospital Payment System?Are Medicare Beneficiaries Being Denied
Services in Some Hospitals?
High Private Insurance Payments Relative to Costs Keep Hospital Systems
Profitable!
YES I KNOW‐‐‐Hospital Cost Shifting Doesn’t Exist
And If Medicare Paid More Its Unlikely That It Would Lower Private Payments
Change in the Private‐Payer Ratio of Payments to Costs for Hospital
Services 2006‐2016
13SOURCE: MedPAC analysis of Medicare cost report data from CMS, MedPAC June 2018 report.
1.301.32
1.27
1.341.36 1.37
1.49 1.49 1.50 1.51 1.52
1.25
1.30
1.35
1.40
1.45
1.50
1.55
2006 2008 2010 2012 2014 2016
Ratio
of P
aymen
ts to
Costs
Fiscal Year
Hospital Total All‐Payer Margin 2006‐2016
14SOURCE: MedPAC analysis of Medicare cost report data from CMS, MedPAC June 2018 report.
5.3
6
1.8
4.3
6.36
6.4
7.2 7.16.8
6.4
0
1
2
3
4
5
6
7
8
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Margin (percent)
Fiscal Year
Growth In Private Insurance Spending Dominated By Hospital Price Growth
2007‐2014*Hospital Percent Growth
Inpatient 42%
Outpatient 25%
Physician
Inpatient 18%
Outpatient 6%
*Z. Cooper et al, Hospital Prices Grew Substantially Faster Than Physician Prices For Hospital Based Care in 2007‐14, Health Affairs February 2019
But The Growing Asymmetry Between Government and Private Payments Does
Affect Different Types of Hospitals Differently
Also Ratio of Private to Medicare Hospital Payments Are Significantly Different in Different
Regions
Hospital Total All‐Payer Margin by Urban and Rural Location and Critical Access Hospitals 2006‐2016
17SOURCE: MedPAC analysis of Medicare cost report data from CMS, MedPAC June 2018 report.
5.7 5.8
2.1
3.7
5.3
4.75.0 4.9 4.8 4.8 4.6
5.3
6.0
1.7
4.3
6.46.1
6.6
7.4 7.37.0
6.5
4.44.9
2.1
2.83.3 3.4 3.6 3.6 3.4
4.4
3.6
0
1
2
3
4
5
6
7
8
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Margin (percent)
Fiscal Year
Rural Urban Critical Access Hospitals
Hospital Total All‐Payer Margin by Teaching Status 2006‐2016
18SOURCE: MedPAC analysis of Medicare cost report data from CMS, MedPAC June 2018 report.
5.55.9
3.0
4.7
6.5 6.36.9 7.1
7.5 7.57.2
6.2
7.0
2.4
5.4
7.47.1 7.1
8.38.6
7.67.1
4.2
5.1
‐0.5
2.5
4.94.3
5.2
6.2
5.1 5.34.9
‐2
0
2
4
6
8
10
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Margin (percent)
Fiscal Year
Non‐teaching Other Teaching Major Teaching
CBO Analysis of 2013 Data Showed Smallest Regional
Difference of 44% and Highest 148%*
*Jared Lane Maeda and Lyle Nelson, “An Analysis of Hospital Prices for Commercial and Medicare Advantage Plans”, Paper Presented at 2017 Academy Health Meeting
Financial Survivability of Hospitals• As Gap Widens Financial Survivability Less Depended on Efficiency and More on Patient Mix and Regional Power Over Pvt. Insurance Companies
In 2013*‐55% of Highly Profitable Hospitals Were For‐Profit (25% of Total Hospitals)‐But Many Not‐for‐Profit Also Highly Profitable (7 of 10 Most Profitable)‐Having Strong Regional Power Key to Profitability‐2 of 10 Most Profitable Were Big Teaching Although Most Are Lower Profit‐Hospital in Systems Do Much Better Than Independent Institutions ‐Public and Rural Hospitals Have The Highest Loses
*Bai and Anderson, “A More Detailed Understanding Of Factors Associated With Hospital Profitability”, Health Affairs May 2016
In Massachusetts Which Has Had High Private Rates But Constrained Growth in Rates in Recent Years Gap was 57% in
2016Differences in Rates Vary By Type of Procedure and Higher for Outpatient
Services
8Notes: U.S. data includes Massachusetts. MA figure for 2017 is preliminary. Center for Health Information and Analysis data are for the fully-insured market only. Sources: Centers for Medicare and Medicaid Services, National Healthcare Expenditure Accounts Personal Health Care Expenditures Data (U.S. 2014-2017), and State Healthcare Expenditure Accounts (U.S. 2005-2014 and MA 2005-2014); Center for Health Information and Analysis Annual Reports (MA 2014-2017)
Annual growth in commercial spending per enrollee, MA and the U.S.,2006-2017
38Notes: Analysis includes facility payments only, excluding professional services. Analysis excludes claims with invalid payment codes and excludes outlier claims at each hospital. Excludes some maternity claims for which discharge of mother and newborn cannot be distinguished. Commercial average payment per di h i dj t d f i ht h it l M di l l t d di t M di t l i l di DSH d t hi
Distribution of average hospital facility payments per discharge, commercial andMedicare, 2016
39
Notes: Analysis includes facility payments only, excluding professional services. Analysis excludes claims with invalid payment codes and excludes outlier claims at each hospital. Commercial average payment per discharge is adjusted for case weight across hospitals; Medicare averages are calculated according to Medicare payment rules, including DSH and teaching hospital adjustments, and assume the same acuity and patient distribution as commercial discharges. Excludes hospitals not paid under Medicare’s Inpatient Prospective Payment System, including Critical Access Hospitals and certain specialty hospitals.Sources: HPC analysis of Massachusetts All-Payer Claims Database, 2016; Medicare Impact File 2016 and FY 2016 Final Rules Tables, Table 1A-1E.
Distribution of average hospital facility payments per discharge, commercial andMedicare, select diagnoses, 2016
Commercial pr
40
Notes: Commercial averages weighted by hospital volume, and exclude claims with invalid payment codes and outlier claims at each hospital. Medicare professional averages are based on statewide average payments for these services; Medicare facility averages are calculated according to Medicare payment rules, including DSH and teaching hospital adjustments, and assume the same patient distribution as commercial visits. Facility amounts exclude hospitals not paid under Medicare’s Outpatient Prospective Payment System, including Critical Access Hospitals and certain specialty hospitals.Sources: HPC analysis of Massachusetts All-Payer Claims Database, 2016; Medicare Impact File 2016; Medicare Outpatient Prospective Payment Addendum B 2016.
Average payment per hospital outpatient department visit, commercialand Medicare, for colonoscopy and brain MRI, 2016
Commercial priestudy
41
Notes: Commercial professional average includes all commercial claims for E&M codes billed in hospital emergency departments with valid payment amounts; Medicare professional average based on statewide average payments for E&M codes, weighted by volume of commercial codes at each hospital. Commercial facility average excludes claims with invalid payment codes; Medicare facility average calculated according to Medicare payment rules, including DSH and teaching hospital adjustments, and assume the same patient distribution and mix of procedure codes as commercial visits. Facility amounts exclude hospitals not paid under Medicare’s Outpatient Prospective Payment System, including Critical Access Hospitals and certain specialty hospitals.Sources: HPC analysis of Massachusetts All-Payer Claims Database, 2016; Medicare Impact File 2016; Medicare Outpatient Prospective Payment Addendum B 2016.
Average payment per hospital emergency department visit (evaluation and managementportion only), commercial and Medicare
mmercial e study
42
Notes: Analysis includes only claims for adult patients receiving care from primary care providers, and excludes outlier claims. Medicare averages are calculated according to Medicare payment rules, and assume the same patient distribution and mix of procedure codes as commercial visits.Sources: HPC analysis of Massachusetts All-Payer Claims Database, 2016; primary care providers identified using HPC Registration of Provider Organizations filings and SK&A provider database; Medicare State HCPCS Aggregate Summary Table CY2016
Average payment per primary care office visit, commercial and Medicare, evaluation andmanagementportion only
Commercialpricestudy
For Medicare Patients: No Cause for Concern NOW
“Most of our payment adequacy indicators for hospitals are positive but 2016 Medicare margins remain negative for most hospitals and were ‐1.0 percent for median relatively efficient providers” (Medpac March
2018 Report)
What About Going Forward?
Hospitals Face Growing Government and Declining Pvt.
Patient Growth Will This Lead to Less Growth in Revenue and Constraints on Hospital Cost Growth or More Focused Emphasis on Services for Private
Patients?
6%
57%
71%
0
10
20
30
40
50
60
70
80
Private Medicare Medicaid
Perc
ent C
hang
e in
Enr
ollm
ent
CMS, National Health Expenditure Projections, 2012 to 2022, January 2013.
Growth in Enrollment by Payer Source, 2006 - 2022
If Medicare Payments Continue to Be Constrained and Pvt. Payments Grow‐‐‐
Could There Be Access Limits for Medicare Patients?
The Growing Use of Restrictions on Physician Coverage for Medicare Patients‐‐‐ ”Concierge
Care” ‐‐‐ Could be Just The Beginning
Let Me Be Very Clear‐‐‐I am NOT Advocating for Higher Hospital
Payments
I Believe as Do Many Economists That Health Care Spending Can Only Be Constrained by
Reducing The Growth in Revenues
But Should Constraints Only Come From Lower Government Payments and
Should Government Ignore The Growth of Relative Private Rates‐‐‐In Three
States‐‐‐Maryland and Massachusetts and Rhode Island The Answer is NO!
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