Providers Happy to Help Reduce Health Care Costs—Not!

By June 2, 2009Commentary

The American Hospital Association and the American Medical Association, in conjunction with a number of physician specialty organizations, have each released statements regarding proposals to help control health care costs by changing, even reducing payments to providers.  As might be expected, both organizations were opposed to any reductions or limits on compensation to their constituencies.

Looking first at the AMA and associated organizations’ statement (AMA Statement), it begins by again requesting repeal of the Sustainable Growth Rate system.  The SGR was implemented as a method to encourage physicians in the aggregate to only deliver truly necessary services.  If total charges to the Medicare program grew too fast, the SGR would reduce annual updates to ensure that actual spending stayed below certain limits.  Over the last few years, however, Congress has stopped the Medicare program from implementing payment reductions called for by SGR, to the point that now physicians should be getting a 20% decrease in payments.  If the SGR is abandoned, Congress will have acceded to what appears to be excessive billing by physicians at the same time it is saying that one of the primary methods to limit health care spending is elimination of unnecessary and abusive physician services.

The AMA statement goes on to make several major points.  One is that physicians should make the decisions about how their compensation is structured, including decisions about what any new bundled payment or value-based reimbursement system would look like.  Another is that physicians should rarely, if ever, face any reimbursement reduction consequences for how they practice medicine.  On the other hand, the AMA is all in favor of physicians being eligible for a variety of bonus payments and for funding to pay the costs of transition to new payment mechanisms, including information system costs. 

The AHA statement (AHA Statement) was aimed specifically at some of the options the Senate Finance Committee was examining to finance health reform.  The Committee considered suggestions regarding reducing annual payment updates to hospitals, nursing facilities and inpatient rehabilitation facilities.  The AHA noted that hospitals already lose money serving Medicare patients.  The Association requested not only that the full updates be provided, but suggested that the current methods used by Medicare to determine how much of an annual increase was needed to cover the increase in hosptials’ cost of providing service were inadequate.  The AHA noted in particular that assumptions about productivity gains were inappropriate, which may be an implicit acknowledgment about the questionable quality of hospital management.  The AHA also opposed attempts to limit payments in geographic areas that appear to have excessive spending.

There are legitimate concerns about the impact of Medicare and Medicaid payment policies on the financial health of physicians and health care facilities.  Credible studies would suggest that these payments may not cover the actual cost of delivering services, although this is a little difficult to calculate in the case of physicians because the largest component of their “costs” is often their own income expectations.  On the other hand, it is also fairly well established by credible research that there is a great deal of geographic and other variation in the care delivered in this country; variation that appears unassociated with quality or, even worse, the research suggests that a greater volume of services is associated with poorer quality.  It is a fair conclusion to think that physicians and hospitals are getting paid for a lot of unnecessary and poor quality care.

For anyone who believes that health care reform will be easily passed, particularly if it has meaningful cost controls, these statements, although not unexpected, should be a reminder of just how difficult the task is.  The only way to have any significant impact on total health spending is by limiting what is paid to providers, either by paying less per service or by paying for fewer services.  If measures are not included in reform legislation to accomplish either or both of those ends, not only will costs not be limited, they are likely to increase beyond current projections because of the coverage expansion.  So limiting provider payments is the critical battleground.

Kevin Roche

Author Kevin Roche

The Healthy Skeptic is a website about the health care system, and is written by Kevin Roche, who has many years of experience working in the health industry through Roche Consulting, LLC. Mr. Roche is available to assist health care companies through consulting arrangements and may be reached at khroche@healthy-skeptic.com.

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