Hospitals and Doctors Hang Together to Keep from Hanging Separately

We must all hang together, or assuredly we shall all hang separately.

Benjamin Franklin (1706-1790), at the signing of the Declaration of Independence, July 4, 1776

The Obama administration has always assumed that American hospitals and American doctors make too much money and should be brought in line with their European counterparts.  Obamacare, in essence, proposes to cut $716 billion out of Medicare over the next decade, and 40% of those cuts will come out of the hides of hospitals and doctors. 

Obamacare Hospital Cuts

Accordingly,  Obama officials prepared for the health law by persuading hospitals to take $155 billion in cuts over a decade. The officials assured hospitals, new, paying, Medicaid and other federally subsidized patients,  would make up for these cuts once the law became manifest in 2014.    This new patient flow would more than compensate for uncompensated patients with bad debts, which hospitals had  previously been forced to swallow. 

But unpredicted events intervened to disrupt this rose scenario.   The sequester cut 2% of rates for  Medicare and Medicaid patients.   Following the Supreme Court’s decision that states could opt out of Medicaid expansion,  6 million Medicaid patients in opt-out states were taken off the promised Medicaid payment table.  In California,  under their health exchange scheme,  patients with platinum plans will pay 10% of expenses, gold plans 20%, silver plans 30%, and bronze plans 40%.   Hospitals say  these patients, who mostly have limited incomes,  will not be able to pay these expenses,  and hospitals will dive  deeper in debt. Finally, Obamacare itself was drawing intensely partisan flak, and its future depended on signing up sufficient numbers of healthy young people and minorities to make it viable.   The deal was far from done.  

On Physician Side of Table

Physicians knew all along that Obamacare rested on the notion that doctors made too much money.  They were not surprised when  last year when the Medicare Payment Advisory Commission advanced a plan  that stipulated that  specialists take a 5.9% cut each year for 3 years (total 16.7%), followed by a seven year freeze on Medicare related incomes.  Primary care physicians were to have their current Medicare rates frozen for seven years.   The Advisory Commission apparently reasoned that if CMS would simply cut hospital and physician Medicare rates,  the U.S. system’s cost would invariably drop towards the costs of other nations. 

The Advisory Commission and Obamacare officials  neglected factors like the U.S. malpractice system with its huge  defensive medicine costs, the $167.000 average debt of U.S. medical school graduates, and the insatible thirst of Americans for easy access to advanced life-saving technologies.   They may have forgotten the negative effects upon rural or inner city hospitals that  depend on Medicare and Medicaid patients to survive.   Many of these hospitals are now closing.   They may have neglected  predictable responses that  hospitals and doctors would  join together for regional dominance and ability to draw a tougher negotiating line with Medicare,  Medicaid, and private payers.  

Lastly, they may not have realized Medicare itself had created rules that made it possible for larger hospital organizations, to employ large numbers of physicians and and to own specialized surgery and specialty centers, and to charge "facility fees" These larger hospital systems could charge higher rates for those physicians than for physician in independent practices or independent specialty centers.  CMS  may have created its own cost-raising monster.   Federal officials seem to have believed, that government “cost-savings” or “cost-sharing”, in the name of “accountability” was the path to lower costs, when the reverse may be true.

Tweet:  Obamacare rests on premise it would lower costs by cutting Medicare and Medicaid rates for hospitals and doctors.  The reverse may be true.