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Industry gears up to oppose Medicare buy-in

Politico reports that hospitals are readying to fight Medicare buy-in tooth-and-nail:

Even before the deal was struck, the nation’s two largest hospital trade groups were asking members to weigh in against the Medicare buy-in, which is not a good sign for Democrats who have worked hard to keep hospitals in the reform fold. As important local institutions with boards stacked with influential community members, hospitals have major influence.

This scares hospitals a lot more than the House's public option. Medicare pays less for services than private insurers do, or than the public plan would. To consumers, that's called "getting a better deal." To hospitals, it's called "making less money." A hospital's total operating budget is always based on its total revenue. They add the income from patients with private insurance, Medicare, and Medicaid, add in the whatever pittance they get for uninsured patients, and use that pool of money to offset their total operating expenses. That, in the simplest form, is the business model.

That model works as long as all three major streams of revenue stay constant. But changing some of their current private patients who are billed at $4,000 per day to Medicare patients who are charged $3,000 per day scares them. Where does the money come from? A health-care wonk will optimistically tell you it comes from more efficiencies. An industry cynic will tell you it comes from increasing volume. For some hospitals, it comes from nowhere, and they're suddenly in financial trouble.

There are two things to say about this. The first is that Medicare buy-in for exchange-eligible individuals from 55 to 64 isn't likely to affect more than three or four million folks. This is not going to be a big change for hospitals. But if it works for those folks, there will be pressure to expand it.

Which brings us to the second point: At some point, hospitals are going to have to learn to live on less revenue. This is a when, not an if. Otherwise, the government goes bankrupt, and so too does the private sector, and then no one can pay hospitals anything anyway. The sooner we begin the process of transitioning to a leaner system, the more time we'll have to complete the transition, and the less disruptive the transition will be. Medicare buy-in for a small slice of the population is dipping a toe into the pool. It's safe, and we can always back off and try another approach if we don't like it. But the longer we wait, though, the more likely it is that we get pushed in altogether.

By Ezra Klein  |  December 9, 2009; 10:31 AM ET
Categories:  Health Reform  
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Comments

Right- at some point we need to start treating this like a cost problem and not an insurance problem. The problem is that politicians are ghaslty afraid of attacking the cost problem because that could also be called "money paid to someone that they won't be happy to give up". I do think that this makes far more sense than a public option that providers are allowed to not accept. At some point we need to find ways of bringing down our total costs.

Posted by: spotatl | December 9, 2009 10:44 AM | Report abuse

No free lunch. Lowering health care costs is just that, and sure as the sun rises in the east and Sarah Palin saying something stupid, lower costs means less money, for someone. Gravity.

Posted by: arnold104 | December 9, 2009 10:48 AM | Report abuse

"Medicare buy-in for a small slice of the population is dipping a toe into the pool. It's safe, and we can always back off and try another approach if we don't like it."

Mr. Klein, it's all about control, isn't it.

Posted by: dturnerc | December 9, 2009 10:59 AM | Report abuse

Question: If someone is 55-65, how long do they have to be uninsured to buy into Medicare?

Posted by: newjersey_lawyer | December 9, 2009 11:01 AM | Report abuse

"At some point, hospitals are going to have to learn to live on less revenue."

As long as hospitals compete on something other than medical outcomes, their expenses will outrun any reasonable medically based payment rates. Why should the government reimburse hospitals for, duplicative specialty centers, debt service on VIP suites, and "bonuses" to high profile surgeons?

The response to the industry opposition should be stronger incentives for the kind continuous improvement used at Intermountain Health; a process that improves medical outcomes and reduces costs all around.

Posted by: Athena_news | December 9, 2009 11:02 AM | Report abuse

Ezra,

I was in Oregon during the late 1980s, when the logging industry was stripping forests at an unsustainable rate. Revenues were the drivers, increasing technology allowed increased production with lower labor costs, and the Regan Administration was egging on expanded harvests on federal lands. The situation was similar from a macro level to health care in that the growth was unsustainable and the entire industry would be put into jeopardy by hitting a wall in the very near future if they didn't scale back quickly.

Well, the wounds are still open and raw between everyone who worked in the logging industry and the environmentalists who fought to perserve what was left. No one mentions the corporate leadership or planning that caused the situation, much less who took the profits and where they are now.

In health care, the commodity is literally the health of millions of our fellow countrymen. The reform movement is trying to keep back the growning tide of costs that drive our countrymen into ill heath and death. Like with the logging industry, we see the corporate interests exhorting their employees to fight against the reformers who are trying to 'ruin' their industry. Like the logging industry, I believe this will come down to a bitter struggle pitting healthcare workers against the general public, while those who directed the downfall and reaped the profits will brush off their hands and walk away to another 'investment' opportunity.

Posted by: Jaycal | December 9, 2009 11:05 AM | Report abuse

Don't forget the AMA, They don't like the Medicare buy-in either. As i've been saying here - the biggest problems in Medicare buy-in are docs and hospitals.

Watch what happens: Docs and hospitals will lobby hard against this AND stir up concern among seniors that Medicare buy-in will cause them to go out of business or reduce the number of MEdicare patients they see.

Posted by: MBP2 | December 9, 2009 11:08 AM | Report abuse

Medicare buy-in, as currently planned, is a sell-out by the Democrats.

This plan would leave anyone below the age of 55 without insurance if they can not already buy their own private plan because of pre-existing conditions.

No plan should be enacted unless it covers almost all Americans.

Posted by: Lomillialor | December 9, 2009 11:08 AM | Report abuse

"At some point, hospitals are going to have to learn to live on less revenue. This is a when, not an if. Otherwise, the government goes bankrupt, and so too does the private sector, and then no one can pay hospitals anything anyway. The sooner we begin the process of transitioning to a leaner system, the more time we'll have to complete the transition, and the less disruptive the transition will be."

But you need to be clearer in your own head on these implications here. There are some efficiencies to be gained WITHIN hospital operations. But the greatest inefficiency within the health care system related to hospitals is that there are too many of them. Becoming "more efficient" will inevitably mean less hospitals in super-saturated areas.

Posted by: wisewon | December 9, 2009 11:11 AM | Report abuse

It really gets at the rural vs. urban post from the other day, which is using traditional economic theory to address something that's not traditional. The unspoken issue with hospital/physician practice economics and the rural vs. urban issue is that more doctors/hospitals mean more demand/volume. Hospital have high fixed capital costs, relatively fixed labor costs, and fairly low variable costs. That means you need GUARANTEE volume will be there in order to survive, because you don't have a great way of downsizing otherwise. For rural hospitals that are in relatively low concentration per capita, they don't have issues-- they have more than enough patients, only address the high-value, urgent health care issues, and subsequently represent our low-cost regions. Urban hospitals, however, are in higher concentration, conciously/subconciously push for more volume individually, meaning higher intensity treatment for patients and subsequently represent our higher cost regions. What was backwards about Ezra's rural/urban post is the focus on negotiating leverage between rural and urban hospitals and suggesting that the relative paucity of rural hospitals gives the disproportionate leverage to charge outsized rates. While that IS true, it effect is significantly outweighed by the "supply drives demand" factor that I've highlighted. Places like NYC, Boston, Florida, California, that have theoretically high competition among hospitals-- they get low reimbursement rates but more than make up for it in volume. The same is true for physicians. In most specialty fields, you can make a lot more in a rural setting than urban. But since there are less doctors in these areas, the total cost remain lower.

So its easy to talk about "gaining efficiencies" in the hospital industry. The reality is that "efficiencies" means shutting down hospitals, decreasing the overabundance of medical equipment/physicians/labor supply in high concentration areas thereby stopping the push of more medical volume/costs in areas to cover the costs of their facilities.

As I've said many times, cost control is A LOT harder than folks think. A health care wonk may be excited about efficiency, but human behavior suggests its awfully tough to shut down facilities and kill jobs (e.g. urban docs) for something so revered in society.

Posted by: wisewon | December 9, 2009 11:12 AM | Report abuse

"Question: If someone is 55-65, how long do they have to be uninsured to buy into Medicare?"

I've read six months. Someone with crummy underinsurance will have to "go bare" for six months before being allowed to buy into Medicare...which will probably be much more expensive than their current plan.

Right now, it looks like the only people who would benefit would be relatively well off "pre-seniors" with pre-existing cnditions.

Posted by: Athena_news | December 9, 2009 11:21 AM | Report abuse

There are and always have been two sides here--insurance reform and cost control, with different coalitions supporting them. What reformers (and the gov't) need to do so somehow pit the insurers against the providers again, but this time with insurance regulations pushing them. And we need a way (as Ezra has said often) to have consumers who don't have to go to the individual market see what health care is actually costing them.

People need to get over the idea that higher cost necessarily means better outcomes; often it doesn't. But the entore advertising industry has persuaded people over the last 30 or more years that it does.

I like the Medicare buy-in, but it does seem that it is going to cost too much to help many people.

As I said yesterday, too many short-sighted, egocentric grandstanders in love with their own voices and their high-rolling lifestyle in the US Senate to get anything serious done. They care very little for the common good and don't even have a clue what it might be.

Posted by: Mimikatz | December 9, 2009 11:21 AM | Report abuse

The emotional side of me says expanding medicare to age fiftyfive is great. I will quit working as soon as they enact that law.

The rational side of me says it is unwise to expand a system already bankrupting the country and this would cause people covered by private insurers to pay even higher premiums.

Man, I hate it when ration wins!

Sadly, the entire healthcare debate has focused on the consumers. The arguements are predicated on the assumption that we can squeeze profits and efficiency to realize significant savings. Barely true. We know from these pages that health insurance operates on a 3.3 margin and services here cost three to four times as much as in other developed countries. There just ain't that much wiggle room.

We should examine how other countries operate but healthcare cannot be seen in isolation. The fact is other governments follow fiscal disciplines and their societies buy into certain conditions that we haven't even considered. That's how they can afford healthcare and why we can't.

Any reform that doesn't address these issues first in putting the cart before an entire team of Clydesdales.

Posted by: bobsteph1234 | December 9, 2009 11:34 AM | Report abuse

But will hospitals really be receiving less revenue, if more of their patients actually have insurance? If even half of the currently un-reimbursed care (to the uninsured & poor) will now be reimbursed, I'd guess that that would more than make up for the lower reimbursements for that small slice of the 55 to 64 population that buys into Medicare.

Don't know that, of course, but, in any event, they will be getting paid for a lot of the care that is currently delivered for "free," and that has to be taken into account when trying to figure the plan's impact on their bottom line.

Posted by: KarenJG | December 9, 2009 11:36 AM | Report abuse

finally in print someone has distilled what all the raging back and forth has been about... and continues to be about...

"To consumers, that's called "getting a better deal." To hospitals, it's called "making less money."

and plug in "insurance companies, doctors groups, various and sundry specialty provider groups, and the big pharma" for "hospitals" and you get an idea of why our alleged health care system is a basket case from every and any perspective...

a better deal for the people or more money for the healthcare industrial complex...any takers on which side the GOP comes down on?

Posted by: teoc2 | December 9, 2009 12:10 PM | Report abuse

teoc2 - you are wrong.

You tax medical device companies - they pass this on to the consumer.

So sticking it to industry doesn't work.

Consumer loses. Industry wins from gain in insured lives.

Any takers on which side the Democrats come down?


Posted by: RandomWalk1 | December 9, 2009 12:35 PM | Report abuse

RandomWalk1 "You tax medical device companies - they pass this on to the consumer."

yeah we get it the healthcare industrial complex always get theirs off the top (defective knee and hip joints included) and the devil take the hind most...real savvy of you to flip off the electorate so brazenly...

thank you for making the case and now we've heard from the medical devices industry lobby—any other takers?

and just out of curiosity how is a medicare buy-in (as in individuals will pay for it hence "buy-In") for those between 55 and 64 on a tax on anybody?

and by the by this is doing the cherry picking for the health insurance industry so they ought to be happy that the government is going to take care of this odious practice they base there exorbitant profits, salaries and bonus on.

why is the GOP so opposed to making our population healthier and freeing up more of their disposable income to spend in our consumer economy instead of having our pockets picked for a service that the insurance industry denies on a regular basis despite having paid premiums for years...

Posted by: teoc2 | December 9, 2009 1:29 PM | Report abuse

"This plan would leave anyone below the age of 55 without insurance if they can not already buy their own private plan because of pre-existing conditions."

Did you miss the part of the health care reform bill which would prohibit insurance companies from discriminating against pre-existing conditions?

Posted by: tomemos | December 9, 2009 2:14 PM | Report abuse

With hospitals and insurance against this latest proposal, it must be good for people who need health care. 'Bout time something for the people!

Posted by: hald | December 9, 2009 4:45 PM | Report abuse

what hospitals don't get is that they can make it up in volume. Most are barely used... fill those beds and get humming along. Hypocratic oath....

Posted by: angriestdogintheworld | December 9, 2009 7:11 PM | Report abuse

You operate under the assumption that the people running various provider organizations actually care about what happens twenty or even 10 years from now.

I imagine they're not too different from your standard CEO, maximize short term profit, and personal gain, bail out on a golden parachute as the whole facade crashes down around you.

The problem will solving long-term solvency is that that is helping someone completely different than our Au-skydiver.

Posted by: zosima | December 9, 2009 7:42 PM | Report abuse

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