Unbiased Analysis of Today's Healthcare Issues

Medicare Payment Adequacy

Written By: Jason Shafrin - May• 26•11

How do policymakers  determine if Medicare payment levels are adequate?  The Medicare Payment Advisory Commission (MedPAC) uses the following criteria:

  • Access to care determined by the number of providers and volume of services.
  • Quality of care
  • Provider access to capital
  • Provider margins.

Although these measures do provide valuable information, they are far from perfect.  Access to care basically means whether beneficiaries have the opportunity to use medical services should they need it.  This could be defined as the proximity of the closest provided or the length of time a beneficiary must wait to receive services.  If certain types of people use lots of services whereas others use few, overall volume of services will be an imprecise measure of access.  Further, the number of providers may obscure geographic variation where certain areas contain too many providers whereas others have too few.

Provider margins is also problematic.  Although aiming to set payments to produce moderate margins (i.e., not excessive, but sufficient to ensure continued provider operations) is reasonable, cost information comes directly from the providers.  Acute care hospitals, skilled nursing facilities (SNFs), home health agencies (HHAs), outpatient dialysis facilities, inpatient rehabilitation facilities (IRFs), long-term care hospitals (LTCHs) and hospices all must submit cost reports.  However, these providers may decide to inflate their costs.  Reporting higher costs will decrease their margins and may cause Medicare to increase payment rates.  At the very least, these providers can argue for higher reimbursement because of artificially low margins.  Medicare must be sure to carefully audit these reports if it plans to continue using them for payment purposes.

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One Comment

  1. Bob Hertz says:

    For the last 45 years, Americans have not had to fit Medicare payments into an overall budget. We just total up the claims paid at the end of the year, look at the trends, try a few experiments, and basically move on.

    If in the future we are forced to balance the federal budget, or even come close, then the answer to the question: “What is an adequate Medicare payment?” will become “Whatever fits the budget!”

    In a health system with a real budget, no worries too much about whether private clinics and hospitals find their payments “adequate.” The private businesses either adapt to the federal prices, or they do not participate in the federal program.

    This has happened to Medicaid in quite a few states. There are few primary doctors who will participate at the low, budget-driven fees.

    The obvious answer should have been a public health system, where the government hires its own doctors and pays them civil service salaries (and cancels their ridiculuously high student debts.)

    Nations which have national health system do not have a servile respect for medical entrepreneurs, whether surgeons or drug companies or for-profit hospitals. English or Canadian or German or French bureaucrats do not flnch from setting MRI costs at $98 or hospital per-diems at $1,500, if that is what it takes to meet the budget.

    We move from cost-based pricing, if you will, into price-based costing.

    Bruce Vladeck has pointed out effectively that Medicare has become a welfare system for providers. too. Which is not so awful except that many of the providers are very, very wealthy.

    I do not mean to pick on this particular article. My goal is to show how insular the American debate tends to be.

    Bob Hertz
    The Health Care Crusade

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