It is difficult to stand by and watch the slow-motion train wreck which is our current health care financing system. The Wall Street Journal reports that Medicare is proposing sweeping changes to hospital reimbursement in keeping with their new emphasis on “pay for performance.”
Medicare has proposed to cut payments to all hospital facilities by between 2 and 5%. This money would purportedly be used to fund an incentive pool which would then be distributed to hospitals showing the most improvement or which surpass certain quality thresholds.
Pay for performance is a philosophy of reimbursement which, ideally, establishes quality guidelines and creates incentives to improve quality by paying more for services which exceed these standards. While this approach has a certain amount of folk appeal, it is fraught with enormous difficulties, not the least of which is the development of the standards themselves, and Medicare and third-party carriers’ obvious conflict of interest as both payer of services and arbiter of what qualifies as “quality” in those same services.
The real intent of these programs is cost reduction, not quality improvement, which can be easily discerned from Medicare’s own statement:
The agency he said the program is designed to be cost-neutral to the government, and could even save money if congress decides not to require redistribution of all the withheld cash.
Gee, I wonder why they would do that? Can you say “earmarked pork”, boys and girls?
It is would seem pertinent that Medicare’s own studies on pay for performance show that it has little or no effect on either quality or cost-containment. The fact that this program does not improve quality, of course, will not prevent the government from instituting it as a blunt club to purportedly improve quality. The train just keeps rollin’ on down the tracks, full throttle. Casey Jones, you’d better watch your speed…
One can foresee a host of significant problems with this particular proposal. 50% of all hospitals had a net profit less than 3.75% in 2005 — and therefore would almost certainly be forced to operate at loss. This will put them at severe financial disadvantage to even implement the quality improvements which Medicare supposedly seeks to encourage. It should be noted that many of these hospitals are smaller facilities serving rural areas, and it seems likely that at least some of these would be required to close, severely restricting access to care for many people in rural areas. For you non-MBAs out there, running a business which costs more money to run than it brings in does not a good business model make.
But let’s for a moment assume a perfect world: spurred on by new government standards, all hospitals immediately improve their quality to meet the new Medicare standards. Therefore, they would get all of their money back, and nobody loses, right? Not so fast. Medicare is notorious for constantly moving the goalpost, and when faced with the dearth of hoped-for cost savings, would almost certainly make the standards increasingly more difficult to meet. The standards will become detached from real improvement in quality — if they ever hoped to achieve this even at the outset — and would increasingly become the bureaucratic nightmare that current documentation and coding standards have become for physicians.
Also unspoken in this proposal are the additional costs to the hospitals of added administrative expenses required to document and report compliance with Medicare’s quality standards in order to receive better (or actually, the same) reimbursement. The net effect would be far more money siphoned from actual patient care into administration and paperwork.
Medicare officials said they would monitor the program closely and adjust it as necessary, and at the same time to expand the quality criteria used to determine whether hospitals earn back the lost revenue. “We want to make sure we’re not causing some unintended or perverse consequences.”
That scraping sound you hear is the moving of goalposts.
The history of Medicare is a history of regulatory tyranny which invariably results in “unintended and perverse consequences.” When your local hospital closes, after this proposal is implemented, be sure to write your Congressmen and local Medicare officials to express your deepest appreciation for their efforts to improve health care quality.