Insurers and employers could save $352 billion if hospitals stuck to Medicare rates

bucksfloating-300x167Who wouldn’t want $352 billion in health care savings in 2021?

Insurers — and more importantly employers — could see that hypothetical big chunk of change staying in their pockets, if somehow they could persuade hospitals to forgo their sky-high and ever-increasing prices, tying those charges instead to rates established and paid in the federal Medicare program that covers millions of the nation’s seniors, a new study reported.

The independent Kaiser Family Foundation (KFF) concedes it is unlikely that hospitals, insurers, and businesses would adopt the nonprofit organization’s newly published research any time soon.

But it puts another twist in the political screws to pressure hospitals to rein in their costs, which other researchers recently estimated now constitute a third of all U.S. health care spending and rising — $1.2 trillion annually.

Medical prices  have gotten out of whack, and policy experts have turned not only to seeking relief for consumers with outrageous prescription medication costs but also hospital bills.

The KFF study, which does not advocate for a mechanism to deal with the pricing challenges, does provide key information to insurers and employers about their stakes with hospital prices.

Insurers, knowing they will reap their profits no matter, too often have sat out patient-provider battles. Insurers do dicker about prices with hospitals and other providers, particularly because employers have become increasingly rattled about the costs they must pay to insure their workers. Most Americans get their health coverage at work, and its costs, notably stiff deductibles, have marched higher in relentless fashion — to the dismay of employers, who pay a huge share of the expense, as well as staffers who find that their policies pay for less while they must fork out so much more.

Discussions about checking the increases in hospital costs are, more and more, zeroing in on negotiation points, notably with the procedures in place for what the federal government pays through Medicare and Medicaid. Hospitals rip those rates as too low. But they take the money still and make up differences in an elaborate system — by shifting costs on to patients with private insurance (mostly through employer coverage) and by taking significant tax breaks for the “community benefit” they offer with charitable care, including with what they deem under-compensated treatment of patients on federal programs.

Big potential health savings

Insurers and employers could see whopping savings, if the entire health system shelved the manipulated payment plans now around, KFF experts reported:

“Total health care spending for people with private health insurance would be an estimated $352 billion lower in 2021 if private insurers used Medicare rates to pay hospitals and other health care providers, rather than the substantially higher rates they currently pay, a new KFF analysis finds. That would represent a 41% decrease from the $859 billion in projected health care spending for people with private insurance this year. The resulting savings would be spread among employers ($194 billion) and employees ($116 billion), and the non-group market ($42 billion), assuming proportional savings throughout the private insurance market.”

The researchers also found that:

  • Nearly half (45%) of the total reduction in spending would be for outpatient hospital services, where the price gap between private insurance and Medicare is relatively large, 27% for inpatient services and 14% for physician office visits.
  • About a third of the reduction would come from lower health care spending for privately insured adults ages 55-64 who tend to use more health care services than younger Americans.
  • On average, health care spending per person with private insurance would be an estimated $2,096 less for adults ages 19-64 and $1,033 less per child if Medicare rates were used.

Opposition to price measures would be ‘fierce’

Still, to be realistic, any moves tying all or more hospital prices to federal rates “could lead to substantial reduction in health care spending but would undoubtedly be met with fierce opposition from health care providers, since the decrease in spending would translate into a significant drop in their revenues.”

Hospitals are big employers and substantial political presences, both in their communities and on Capitol Hill, where significant health care cost reforms likely would be weighed. As the KFF researchers also noted, however:

“Over the years, federal and state lawmakers have proposed using Medicare rates to rein in health care prices. The new KFF analysis does not examine a particular health reform plan and is not intended to be a forecast, prediction, or an endorsement of the policy. Instead, it illustrates how lower payment rates could reduce health spending. Those payment changes could be implemented through a variety of proposals such as Medicare for all, a public option, lowering the age of Medicare eligibility, or all-payer rate-setting. Policies that resulted in private insurance payment rates that were a multiple of Medicare would result in proportionally fewer savings.”

In my practice, I see not only the harms that patients suffer while seeking medical services, but also their struggles to access and afford safe, efficient, and excellent health care. This has become an ordeal due to the skyrocketing cost, complexity, and uncertainty of treatments and prescription medications, too many of which turn out to be dangerous drugs.

It might seem harsh to scrutinize hospital expenses at a time when the institutions, doctors, nurses, and other health workers have performed so bravely and well in battling the coronavirus pandemic. But consumers know that their nightmares with medical costs have not gone away and they may well return with ferocity if vaccinations and public health restrictions quash the coronavirus enough, so greater normality returns.

Even if the nation, under the Biden Administration, manages to get more people insured, either by employers, or under the Affordable Care Act, including with its Medicaid expansion, patients are screaming for relief from bankrupting medical expenses.

More evidence on how ‘bundling’ saves money

Every bit matters. Which is why employers and insurers may want to keep focused on “bundled” payments for medical procedures. Under this approach, payers (patients, employers, and insurers) provide incentives for providers (including hospitals, doctors, labs) to bundle their charges into a single bill. One payment goes to one party, typically hospitals, which then dole out appropriate shares — to primary care doctors, surgeons, anesthesiologists, pathologists, labs, and the like. As Bloomberg news reported:

“Employers can cut their health-care expenses by paying top medical providers a flat rate for a bundle of related services while offering incentives to the patients who use them …[a] study, published … in the journal Health Affairs, found that employers using a flat-rate approach run by Carrum Health saved about 11% overall on procedures including joint replacements, spinal fusions and bariatric surgeries. The average prices when people used Carrum providers were between 6% to 41% lower compared with other providers … [This] plan isn’t limiting patients’ choices. Instead, it’s giving them an incentive to choose doctors that have been selected for superior performance. In turn, the providers get paid directly, rather than having to bill insurance companies. They also get a higher volume of patients, though at discounted pricing. To evaluate the impact of the program, researchers from The RAND Corp. and Carrum Health looked at medical claims data from eight large employers and purchasing groups, including public and private sector entities. They compared costs for more than 2,000 surgeries over five years, both before and after Carrum’s program was implemented.”

As the RAND experts reported:

“Studying three types of major surgical procedures for patients who had commercial insurance, researchers found that a bundled payments program reduced total surgery costs by an average of $4,229, a 10.7% relative reduction. As an incentive for patients, cost-sharing payments were waived for the 21% of patients who went through the program. Following implementation, patient payments decreased by $498, a 27.7% reduction.”

By the way, ask any hobbled patient if they would prefer dealing with a blizzard of medical bills after a procedure or just one, as occurs with bundling. Easy answer? We have lots of hard work to do to get medical bills more in line and to deal with out-of-control health costs.

Patrick Malone & Associates, P.C. listed in Best Lawyers Rated by Super Lawyers Patrick A. Malone
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