By Christopher Cai James Kahn: For More Info, Go Here…
Hospitals account for more than one trillion dollars of health expenditures annually, and analysts have raised concerns that a shift to single payer, or Medicare for All, might adversely affect hospital care. A common narrative has emerged in the popular press and in medical journals, suggesting that Medicare for All would decrease reimbursements and force hospitals, particularly rural hospitals, to cut back on much needed services or even close altogether. These concerns have received increased attention with Elizabeth Warren’s recently released financial proposal for Medicare for All. Understandably, these points have raised concern about the feasibility of Medicare for All. But is this narrative evidence based?
For background, two current bills, H.R.1384 and S.1129, would implement a single-payer, Medicare for All reform. Those bills would cover all US residents for a comprehensive range of benefits, with a government-run insurer replacing private insurance as well as Medicaid and Medicare. Proponents of such reform project that administrative savings would offset the increased costs of expanding and improving coverage.
These bills would change the way we pay for hospital care but not in the way that has been popularly portrayed. Let’s review the status quo. Currently, private insurers pay 1.4 times the average hospital’s operating costs, while Medicaid pays 0.868 and Medicare 0.881 times operating costs. Not surprisingly, hospitals try to preferentially recruit privately insured patients and worry about subsisting on Medicare-level payments. As one prominent hospital administrator told me, “If Medicare for all were passed, we would have to close our doors in a month.” Some also suggest that Medicare reimbursement rates would encourage hospitals to shift to higher-margin, procedure-intensive care, undercutting the projected savings of a single-payer reform and further skewing our health care system away from cognitive and preventive care.
Medicare For All Proposals For Hospital Financing
These projections assume that hospitals will continue to be paid on a per-patient basis under single payer, with reimbursement rates plummeting to Medicare levels. However, Elizabeth Warren’s financing proposal keeps per-patient billing but raises reimbursements to 110 percent of Medicare levels, which would approximate operating costs of hospitals.
Congressional bills go further. The House bill would abandon per-patient payments and instead fund hospitals through “global budgets.” (The Senate version also calls for global budgets for hospitals but suggests that some elements of Medicare’s current payment approach might persist.) Under global budgeting, hospitals would receive an annual lump sum, distributed in monthly installments, similar to how US fire departments or hospitals in Canada are financed. Under this system, hospitals would receive extra funding in the case of unexpected deficits and would not keep surpluses for themselves. At present, surpluses (or the expectation of future surpluses available to pay back loans or bonds) is the main source of funding for hospital upgrades or expansion.
Per-Patient Billing Leads To Wasteful Spending
Currently, hospitals have incentives to invest their surpluses in capital projects that will maximize future profits/surpluses, for example, operating rooms or other facilities serving mostly privately insured orthopedic patients. Reflecting those incentives, the number of knee and hip replacements at small rural hospitals increased 42 percent between 2008 and 2013. Yet, such capital investments may not fit communities’ most urgent needs or be appropriate at all: Thirty-day mortality for elective surgeries in small rural hospitals can be twice as high as in other hospitals, likely due to low patient volume .
