Healthcare Revenue Cycle Management, ICD-10, Claims Reimbursement, Medicare, Medicaid

Policy & Regulation News

Will Cost Shifting Drive Support for Larger Public Payments?

By Jacqueline DiChiara

- Speculation abounds around whether hospitals’ decisions to increase the prices charged to commercially insured individuals to compensate for decreased Medicare reimbursement via cost shifting will reduce the healthcare industry’s fifty-one billion dollar financial deficit.

To close this monumental gap, private insurers are paying – to the tune of one dollar and forty-three cents for every dollar of care administered.

Medicare currently pays eighty-eight cents for every dollar of care provided. Medicaid pays ninety cents for each dollar of care. In 1999, Medicaid paid ninety-six cents per dollar while Medicare paid dollar for dollar.

This method that hospital executives utilize to make up for payment shortfalls by charging privately insured patients more may be in direct relation to decreased Medicare and Medicaid reimbursements. This approach aims to enable the healthcare industry to thrive by promoting support for larger public payments.

As hospitals shift costs in response to Medicare payment shortfalls in an attempt to compensate accordingly, they seek solid solutions. Alternative methods are being explored such as a focus on improving the additional means hospitals use to respond to Medicare payment shortfalls.

Numbers drive hospitals to take action. Medicare payment rates in 2009 for inpatient hospital services totaled sixty-seven percent, confirms Austin B. Frakt, Health Economist, VA Boston Healthcare System. Medicaid payment rates totaled to sixty-six percent of private health insurance payment rates. Medicaid payment rates equaled Medicare payment rates during this same year. Additionally, Frakt confirms a “decline in tandem relative to private health insurance payment rates over the next 75 years.”

Additionally, there was a ten percent reduction in Medicare payments in direct association with an eight percent reduction in private prices from 1995 to 2009.

Such data is even more critical in light of recent news about the Sustainable Growth Rate (SGR) and its originally intended objectives.

“The intent of the SGR system, which was enacted as part of the Balanced Budget Act of 1997, is to limit growth in spending on physician services to a sustainable rate, roughly in line with the rate of overall economic growth,” say John D. Shatto, FSA Director, Medicare and Medicaid Cost Estimates Group, and M. Kent Clemens, FSA Actuary, within a Centers for Medicare and Medicaid Services (CMS) report.

If beneficiaries at large are struggling to afford available healthcare options, this naturally becomes heavily problematic.

“The sizable differences in projected Medicare cost levels between current law and the illustrative alternative scenario,” says Shatto and Clemens, “highlight the critical importance of finding ways to bring Medicare costs—and health care costs in the U.S. generally—more in line with society‘s ability to afford them.”

It is predicted over the next ten years that fifteen percent of hospitals will lose profits as a result of the Affordable Care Act’s (ACA’s) cuts to Medicare.

As cost shifting develops over the next decade, private payments may become direct reflections of public payments. Hospitals will decide what actions and approaches, including cost shifting, execute most effectively to produce sound numbers year after year.


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