Hospitals agree to reduce their costs – sort of

Hospitals have agreed to accept cuts in reimbursement from Medicare and Medicaid totaling $100 billion over the next ten years, with most of the reductions coming several years from now. Another $55 billion or so will be saved from several other measures.
In return, the White House and Senate Finance Committee have agreed that a public plan option will not reimburse facilities at Medicare rates. Reportedly, the three big hospital associations agreed to the $155 billion deal after President Obama’s June announcement that his team had identified more than $200 billion in payment reductions.
The associations were also leery of the proposal to move the power to set Medicare reimbursement rates from lawmakers to a muscled-up MedPAC (Medicare Payment Advisory Commission). The current rate-setting process is controlled by Congress and subject to intense lobbying by all parties, including hospitals and sub-groups of hospitals, intent on preserving and increasing their reimbursement. An independent board modeled on the Federal Reserve would eliminate much of the industry’s influence, a situation that likely terrifies the hospitals.
As Maggie Mahar recently noted; “[MedPAC has] digested the Dartmouth research revealing that when patients in some parts of the country receive more aggressive and more expensive care, outcomes often are worse. They realize that doctors and hospitals should be rewarded for the quality of the care they provide, not the quantity.”
Yikes, that’s scary stuff. It clearly illustrates the challenge of health reform – reducing waste, which everyone agrees is rampant, means reducing revenues, in this case for hospitals. Empowering an independent commission to reduce waste would be a death sentence for many cherished hospital programs and more than a few hospitals.
The watering down of the Rockefeller bill may well be the most important piece of the deal – for both sides.
A little perspective here might help.
First, note that these savings are accruing to governmental programs.
Second, we’re talking about $15 billion in savings per year.
Third recall that hospital costs account for about a third of total expenditures, or about $700 billion per year.
I just can’t get that excited about a deal that reduces costs by two percent, especially if it eliminates/reduces our chances of saving really big dollars by not paying for lousy health care.
While the President may not be directly involved in negotiations or policy writing, he is definitely wielding the big stick. I’d respectfully suggest he use it to keep the MedPAC independence bill moving, regardless of what hospitals want.