United Healthcare wins
CMS' hospital reimbursement change is going to create winners and losers; among the biggest winners will be UnitedHealthcare.
Among the losers, their competitors.
The new S-DRG reimbursement scheme will go into effect October 1, 2007. S-DRGs are designed to address hospitals' contention that Medicare’s previous DRG system did not adequately compensate them for the costs of treating more medically complex inpatients.
In addition, there have been changes in how hospitals treat patients in the last 24 years (the last time there was a significant change to Medicare's hospital reimbursement), many which are technology driven, and this resulted in a widening gap between what Medicare paid for some DRGs and hospitals’ actual costs.
Most payers use some form of DRG reimbursement methodology, calculating hospital payment by running a patient's diagnosis and procedure codes through an automated 'grouper' that spits out the (theoretically correct) DRG. These payers' reimbursement methodologies, and financial liability, is therefore driven (in large part) by CMS.
Here's why UHC is a winner. According to Vincent Drucker, CEO of FairPay Solutions (an HSA consulting client), "A few years ago United decided to 'de-link' it's hospital reimbursement from any connection with Medicare’s DRG system. Today United mostly pays hospitals based on per-diem rates with no outliers. They also have a few case rates carved out, typically for higher-volume inpatient procedures, where they pay per the specialty hospitals’ the lowest prices. None of the other major commercial payers has done this."
With hospital and facility costs accounting for 41% of Medicare and Medicaid medical expense and more than 30% of private insurers' spend, it is apparent that a health plan with a cost advantage could substantially benefit from a combination of a lower cost-of-goods-sold coupled with the ability to reduce premiums to capture more share.
While I have my issues with UHC, they are very good at managing reimbursement.