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Medicare News
Low Medicare, Medicaid Payments Costing Consumers,
Employers Billions
Two new studies show doctors, hospitals look
elsewhere for profits
 June 1, 2006 – Two recent studies show that
billions of dollars in billing are being shifted to consumers, employers
and health plans by hospitals and physicians, who are trying to offset
their losses from treating Medicare and Medicaid patients. Medicare, for
example, pays up to 54 percent less for adult doctor visits than does
private insurance.
 Constraints in Medicare, Medicaid Budgets Result in
Higher Private Health Insurance Costs in Washington, Study Says
U.S. employers and consumers are paying billions of
extra dollars each year for medical care in hospitals and doctors'
offices to offset underpayments from Medicare and Medicaid, according to
a study released on Wednesday by Seattle-based
Premera Blue Cross, the
New York Times reports.
(See the
complete story on the Premera study below this report.)
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In 2004 -- the most recent year for which complete
data are available -- hospitals in Washington charged an additional $738
million to private payers to make up for underpayments from Medicare and
Medicaid, according to the study, which was conducted for Premera by
actuaries at
Milliman.
The same year, Washington state physicians charged
private payers an extra $620 million to compensate for losses from the
government programs (Freudenheim, New York Times, 6/1). The study also
finds the following:
● In 1997, Washington hospitals had an annual
profit margin of 2.9% for services for Medicare beneficiaries, while in
2004, they were experiencing a loss of 15.4% for those services;
● From 1997 to 2004, hospitals' profit margins for patients with
employer-sponsored health plans increased from 5% to 16.4%;
● Profit trends for physicians' offices were similar to those for
hospitals (Stucke, Spokane Spokesman-Review, 6/1);
● The cost to employers for the additional charges is equivalent to
$902 per family insurance policy, or about 13% of all commercial
hospital and physician costs; and
● Medicare pays physicians 25% to 31% less than private insurers in
Washington, and Medicaid pays about 30% less than private insurers for
children's office visits and up to 54% less for adults' office visits
(Fetters,
Everett Daily Herald, 6/1).
California Study
A second Milliman study, commissioned by
Blue Shield of California, finds that health plans and consumers in
California paid an additional $4.5 billion for hospital care to make up
for underpayments by Medicare and Medicaid. The California study did not
examine trends for physicians' offices.
Implications, Comments
Officials from business organizations, health plans and groups
representing physicians and hospitals will meet in July to discuss the
report and make policy recommendations, the Times reports. Employers say
the rising health care costs are contributing to "the growing numbers of
people without insurance," adding that "when those people check into
hospitals, they generate even higher costs for those employers and
consumers who pay insurance premiums," according to the Times.
Rich Maturi, a senior vice president at Premera, said the reports will show
"employers and policymakers that they needed to address an unsustainable
trend in the growth of cost-shifting" (New York Times, 6/1).
Premera CEO
Gubby Barlow said, "It threatens to undermine efforts by employers,
employees and health care providers to moderate the growing costs of
medical care."
Bob Perna, director of health care economics for the
Washington State Medical Association, said, "The payment rates that
we see in the Medicare program are below what it costs for the
physicians to deliver the service. And it's worse with the Medicaid
program."
WSMA says more than 65% of physicians in the state have
stopped accepting Medicare and Medicaid beneficiaries as patients
because of low reimbursement rates (Everett Daily Herald, 6/1).
Helen
Darling, president of the
National Business Group on Health, said, "This is a serious national
problem, and it is only going to get much worse," adding, "There are
more uninsured, the hospitals are inefficient, and every year Medicare
and Medicaid hold down on increases to cover rising medical costs."
Paul
Ginsberg, president of the
Center for Studying Health System Change, said
passage of the new Massachusetts health insurance law -- which
included increased funding for Medicaid that was supported by both
Blue Cross Blue Shield of Massachusetts and hospital group
Partners Healthcare -- is "a real-world example of hospitals and
insurers seeing that the[y] had common interests" (New York Times, 6/1).
Washington Employers Bear a Billion-Dollar Burden to
Cover Medicare, Medicaid Cost Shifts
Premera Blue Cross study in Washington finds
hospital, physician charges shifted
June 1, 2006 – Employers in Washington state paid
more than $1 billion in 2004 to cover shortfalls incurred by hospitals
and physicians due to the low rates paid by Medicare and Medidaid,
according to an analysis by Premera Blue Cross. This extra cost is on
top of the employers' own growing employee healthcare costs. Nationally,
the cost to employers is several billions of dollars annually.
"Some call it Medicare and Medicaid cost-shifting;
others call it a hidden tax," said Gubby Barlow, Premera CEO. "By any
name, it's a billion-dollar burden for Washington employers and
policyholders, and that burden is growing every year. It threatens to
undermine efforts by employers, employees and health care providers to
moderate the growing costs of medical care."
In 2004, this hidden tax cost Washington employers
an average of $902 per family health insurance contract -- 13 percent of
all commercial hospital and physician costs.
Premera estimates that Medicare and Medicaid
cost-shifting, not employees' medical care, accounted for 29.9 percent
of the increase in employee hospital costs paid by Washington employers
in 2004.
"This growing trend has serious implications for
the affordability of private insurance, and employee wages," said Steve
Leahy, president of the Greater Seattle Chamber of Commerce, which
employs about 32 people and represents 2500 businesses in the Puget
Sound area. "We simply cannot sustain this cost-shift without serious
long-term repercussions."
Spurred by the study, organizations from eastern
and western Washington are convening this summer to begin exploring
options to address the issue. The initial list of organizations includes
the Greater Seattle Chamber of Commerce, the Spokane Chamber of
Commerce, the Inland Northwest Business Coalition on Health, the
Washington State Hospital Association, Regence Blue Shield, the
Association of Washington Business, the Washington State Medical
Association, Group Health Cooperative, the Washington Health Care Forum,
the Snohomish County Economic Development Council, MultiCare Health
System, the Polyclinic, and Premera.
Premera commissioned the May 2006 report, titled
Payment Level Comparison between Public Programs and Commercial Health
Plans for Washington State Hospitals and Physicians, from Milliman Inc.,
an internationally recognized consulting and actuarial firm.
The analysis shows that employers have faced
increasing impact from government program hospital losses since 1997
when hospital profit margins on Medicare business began declining.
Washington patient related hospital margins on
Medicare business fell from a 2.9 percent gain in 1997 to a 15.4 percent
loss in 2004. During the same period, Washington hospitals increased
their profit margins on the commercial (employer-provided) segment of
their business from just over 5 percent to 16.4 percent.
In 2004, Washington hospitals lost $622 million for
care delivered to patients with Medicare and Medicaid coverage. In
contrast, the same hospitals earned $845 million for care delivered to
patients with employer-provided health care coverage. The overall
patient-related gain for Washington hospitals was $222 million, or about
2.4 percent.
Washington physicians experience a significant
payment gap between Medicare/Medicaid and private sector patient care as
well.
According to the Milliman study, Medicare pays
physicians 20 to 26 percent less than commercial insurers in King
County, and 25 to 31 percent less elsewhere in the state. Medicaid pays
31 to 36 percent less than commercial insurers for children's office
visits; 50 to 54 percent less for adult office visits; 11 to 18 percent
less for maternity services; and 55 to 58 percent less for other medical
services.
In all, Premera estimates nearly $1.4 billion in
medical care costs -- $738 million in hospital costs and $620 million in
physician costs -- were shifted to Washington employers and other
commercial customers in 2004 as physicians and hospitals charged higher
commercial rates to offset payment shortfalls from Medicaid and
Medicare.
"You can't fix what you don't see, and clearly no
single entity can fix this problem alone," Premera CEO Barlow said.
"Understanding the various drivers behind rising healthcare cost trends
is one step toward more sustainable healthcare costs for the employers
and members we serve. This collaboration with providers, employers,
elected officials, and our members is part of a larger effort aimed at
twin goals of better health and more sustainable costs for our members."
The full report is at
www.premera.com/newsroom.
About Premera Blue Cross
Our mission is to provide peace of mind to our
members about their health-care coverage. We provide health insurance
and related services to more than 1.3 million people. Premera Blue Cross
has operated in Washington since 1933 and in Alaska since 1957. Premera
is an independent licensee of the Blue Cross Blue Shield Association.
Premera Blue Cross is a member of a family of companies based in
Mountlake Terrace, Washington, that provide health, live, vision, dental
and long-term care insurance, and other related services.
For further information, visit
www.premera.com.
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