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Organized healthcare was quick to respond. In a statement posted on the American Hospital Association website, AHA president and CEO Rich Umbdenstock noted that, “Today, the Medicare program no longer negotiates hospital payment rates—it unilaterally sets them through annual regulations, resulting in payments that now average about 95 cents on the dollar of Medicare-allowable costs, according to the Medicare Payment Advisory Commission (MedPAC). In addition,” Umbdenstock’s statement said, “large insurance companies negotiate rates with individual hospitals based on an array of factors, including each hospital’s proposed rates, scope of services, and accessibility to and reputation within the community.” And the statement further noted that “It would create serious antitrust risks for hospitals to share the proposed or negotiated rates with each other. Variation in charges, therefore, is a byproduct of the marketplace so all parties must be involved in a solution, including the government.”
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Who's responsible for the crazy hospital prices?
This report should be filed under the heading “we have seen the enemy and it is US!”…Pogo, circa 1960.
If there was ever a report that was self-indicting this is it. Yes hospital charges are non-sense, all over the map, not based on logic, etc. All true. But how’d that happen. As a former CFO I can tell you it was all done via the Medicare Cost Report, the core basis of Medicare payment system. For almost five decades the government has used the Cost Report, and a myriad of other convoluted reimbursement systems, to calculate payments to hospitals. So over the decades any good CFO would make sure that his charges maximized his governmental payments. And Medicare and Medicaid usually make up 60% of the total payments.
Some fifty years ago charges became a substitute for statistics and cost accounting to estimate how much the government was going to pay you. Ever hear of RCCAC? That’s the Ratio of Costs to Charges as Applied to Costs, a key calculation in the Cost Report. One of the most insane ways of ‘identifying’ costs ever cooked up. And it’s still used today!
Hospitals get paid based on DRGs, but still must do a Cost Report to justify the DRG amounts. I was around in 1983 when the feds came up with DRGs, they said back then the DRG system would replace the Cost report…and here we are 30 years later- with both!
If you want to know why charges are a mess…just look at the Cost Report, and ask who created that monster?
Frank Poggio
The Kelzon Group
http://KelzonGroup.com