Being against Obamacare has been the keystone, the capstone, the mighty sledgehammer, the massive metaphor of your choice for the right for five years now. They couldn’t stop it from being passed. They couldn’t stop it at the Supreme Court. They weren’t able to choke it off by “defunding” it. They rejoiced at the rubber-meets-the-sky rollout of, but then the kinks got worked out of that. They railed at the administration using discretionary powers built into the law to help it work better. Every horror story of Obamacare ruining people’s lives they came up with turned out to be false. Almost all of the people cynically cancelled by the insurance companies as a way to sell them more expensive insurance got insured again fairly quickly. Then 7 million people signed up on the exchanges, and altogether some 10 million formerly uninsured people now have medical coverage.

But the right still needs to call it a “train wreck.” The magic mantra has to work for them. Just this morning, here’s a Republican Congressman saying that we have to cut Food Stamps because: Obamacare. Say that again slowly?

It’s getting harder and harder on the right to come up with new ways to say it isn’t working when it actually seems to be working. I have to hand it to them, though: Those spin factories are filled with hard-working creative people. Get to work early, stay late, trash Obamacare. Hey, it’s a living.

So what’s the latest?

So what’s the latest? This fall, Obamacare premiums are going to “skyrocket”!

Health and Human Services (HHS) Secretary Kathleen Sebelius went before a House Ways and Means Committee hearing a few weeks ago and claimed outrageously that premiums on the exchanges are likely to rise for 2015, but not by much, and certainly more slowly that in the past.

What? How can this be? Yet another Administration figure has been trotted out to claim baldly to Congress and the American people that Obamacare is basically going to do all right. got right to work and managed to come up with what they claimed were health insurance company officials eager to forecast that they would have to triple their premiums or more — and they would be rolling out those jack-ups right in time to deal a blow to Democratic chances in the fall elections. TheHill then published it under the breathless headline: “O-Care premiums to skyrocket.”

Neat, huh? Maybe a little too neat. Let’s see whether this claim makes sense.

Capped MLRs: Under the ACA, insurance companies must pay out at least 80% to 85% of premiums for actual medical costs, depending on the type of plan. These are “medical loss ratios” (MLRs). That’s the law. The other 15 to 20% is all they get for administration, advertising, executive bonuses — and profit. If they arbitrarily jack up rates, so that they are paying out a lower proportion in medical costs, they have to give the excess back to the rate-payers. The federal government has already forced some insurance companies to do this.

Those anonymous company officials who complained to TheHill claimed that “everybody knows” that higher costs imposed on the insurance companies by the botched Obamacare rollout will have to be passed on to consumers. Is this is true? Were there huge costs to the insurance companies? Doesn’t matter. Unless they plan to break the law and falsely report their MLRs, these alleged extra costs still have to be absorbed in that 15 to 20%.

So the only reason that they would be able to make premiums “skyrocket” is if the actual healthcare costs per person “skyrocket.” So how are healthcare costs doing?

Healthcare costs: Yes, healthcare costs (National Medical Expenditures) are continuing to go up — at a rate lower than 2%, the lowest rate that has been counted in the 50 years that they have been counting. Not a skyrocket.

But maybe they mis-guessed on 2014, and holy moly, they’re suffering! Or maybe they purposely under-priced their offerings in 2014 to gain market share. So they have to make up for it in 2015?

Price war: Talk to insurance marketing and sales people. I do a lot. They’ll tell you that you really don’t want to be the low-price leader. If you purposely under-price the market, you get the people who buy on price alone, and these are not anybody’s favorite customers. They will buy the cheapest product you offer this year, then drift away for someone else next year, when you have to raise the premiums. And you will have to raise your premiums, because your MLR came in at 110% — you’re spending more on medical care than the premium brought in, and you just can’t do that year after year.

So no, price wars are not the thing to do in healthcare insurance.

But maybe they guessed wrong on how expensive these new people are going to be with their new medical insurance?

Actuarial risk: It would be reasonable to assume that the insurance companies took their best shot at the actuarials for 2014. These are new markets and new customers, and there are lots of them. It’s a “bet the company” deal to get it wrong by any major amount. They have already figured in the really sick people who couldn’t get insurance before, and the bump in utilization from not-sick people who are newly insured and getting various problems taken care of, and so on. Looking forward to 2015, there is no new, extra actuarial bump in the offing, except that more of the uninsured, having missed the window this year, are likely to sign up when the window opens again in the fall.

But what about the balance of young and old?

Death spiral: What about the dreaded “demographic death spiral,” with too few healthy young people signing up to balance out the 50-somethings and the chronically ill? Didn’t happen. Apparently a pretty good percentage of young healthy people signed up, especially in the last surge, enough to come close to the Administration’s projections and hopes. Now, of course, you can always just claim that the Administration is “cooking the books,” that’s an easy out. But my read is that the Administration, having been seriously burned on the “you can keep your insurance, you can keep your doctor” misstatement, is actually being quite cautious in its claims. I am not seeing any dancing in the end zone here.

But what if a particular insurance company got it wrong in a particular market? Won’t they get burned badly and have to jack up rates to make the loss back?

The Three Rs: The insurance companies are back-stopped by each other and the federal government if they guessed seriously wrong through the provisions in the law called the “Three Rs” (reinsurance, risk corridors, and risk adjustment). No one is going to be “forced” to make their rates “skyrocket.” If they want to stay in the market, they will be looking for very moderate increases.

Still, aren’t the insurance companies themselves saying that things are way out of whack, they are taking it in the shorts, and they are going to have to jack up premiums for 2015? Actually, no, they are not.

How the insurance companies really see it: There are plenty of reasons to believe that running most citizens’ healthcare financing through for-profit public companies is a bad idea. But it does have at least one advantage: unlike not-for-profits, for-profit public companies by law have to show a certain amount of transparency. They have to open the doublet and show us what they’ve got. In annual reports, in 10Ks, and in conference calls with Wall Street analysts, what CEOs and CFOs say has legal weight. Of course they want to sound positive, because they would like to drive the stock price up. But material forward-looking misstatements can get you sued by your shareholders. So unlike in alleged anonymous unattributed whines to political blogs, public company executives have some care about what they say.

And what are they saying? They’re doing fine. Wellpoint, one of the nation’s largest health insurers (it operates many of the for-profit Blue Cross/Blue Shield plans) recently raised its earnings projections. Why? According to CEO Joseph Swedish, mostly because way more people signed up for its Obamacare plans than it expected. Think about that: This also clearly means that Wellpoint expects to make money off of all those new customers at the prices they were quoted. Absent some huge demographic or actuarial bump, they don’t expect that they will have to “skyrocket” premiums next year to make up for some mistake.

This is just the latest in a string of positive financial projections since the first of the year from all the big for-profit insurance companies, including Aetna, Cigna, Humana, and UnitedHealth Group. Swedish at least doesn’t think this is temporary. In the same analysts call, he predicted that Wellpoint is currently in a position to “drive profitable growth over the next several years.”

So: Actual healthcare costs are almost flat. Healthcare insurers don’t really do price wars. They were serious about their actuarial guesses for 2014, including all the new expenses of really sick people and the previously uninsured. The “demographic death spiral” did not really appear. The Three R’s protect the insurance companies from getting the risk seriously wrong. And in public, when misstating things could get them into big lawsuits, they say they are doing fine, they can handle the risks, and they expect to make money.

So no, there is no reason to believe that rates for 2015 are going to shoot up, “skyrocket,” explode, use metaphor of your choice here. None.

There is plenty to find fault with in the ACA, and plenty of room to debate about the perfect way to reform healthcare. But I would expect people who want to add to that debate to come armed — with things like research, logic, facts, real quotes from real people, and an understanding of how this industry actually works.


Strategies for Doing More with Less

by joeflower on March 29, 2014

(Originally published in Hospitals & Health Networks Daily 3/25/14)

The conversation has changed.

The old conversation: “You cost too much.”

“But we have these sunk costs, patients who can’t pay…”

“Okay, how about a little less, then?”

The new conversation: “You cost too much. We will pay half, or a third, of what you are asking. Or we will take our business elsewhere. Starting now.”


Exactly: How will you survive on a lot less money? What are the strategies that turn “impossible” to “not impossible”?

New Strategies

The old conversation arises from the classic U.S. health care model: a fully insured fee-for-service system with zero price transparency, where the true costs of any particular service are unknown even to the provider. The overwhelmingly massive congeries of disjointed pieces that we absurdly call our health care “system” rides on only the loosest general relationship between costs and reimbursements. It’s a messy system littered with black boxes labeled “Something Happens Here,” full of little hand waves and “These are not the droids you’re looking for.”

With bundling, medical tourism, mandated transparency, consumer price shopping, and reference pricing by employers and health plans, we increasingly are being forced to name a price and compete on it. Suddenly we must be orders of magnitude more precise about where our money comes from and where it goes: revenues and costs. We must find ways to discover how each part of the strategy affects others. And we need some ability to forecast how outside forces (new competition, new payment strategies by employers and health plans, new customer handling technologies) will affect our strategy.

Key Strategy Questions

For decades, whenever some path to profit in health care has arisen (in vitro fertilization, urgent care, retail, wellness and the others) most hospitals have said as if by ritual, “That is not the business we are in.” As long as we got paid for waste, few health care organizations got serious about rooting it out. And most have seemed content with business structures that put many costs and many sources of revenue beyond their control.

In the Next Health Care the key strategy questions become:

  • Why are you not capturing as many revenue streams as possible?
  • Why are you not capturing as many savings as possible?
  • Why don’t you have a business structure that converts savings into profit?

Different Revenue Streams

The new environment brings a number of different revenue streams, each with different characteristics. These include:

Bundled offerings and medical tourism. The game here is to lower costs through efficiencies and scale, lower the price and make it up on volume.

Primary stream. Medical homes, direct pay primary care, urgent care and retail care each have their own revenue streams which may include pay-for-performance or other quality payments, per patient per month prepayments, or fee-for-service. This is genuine revenue, but your very success in the primary sphere will (and should) cut your income from the emergency department, as well as many expensive and profitable inpatient and outpatient procedures.

Onsite clinics. Medical homes run on a “cost plus” basis; these bring some income and have the same effect as other primary care streams.

Capitation. Like Kaiser Permanente, where the monthly premium plus co-pays or coinsurance cover everything in system-owned facilities with staff clinicians. Capitation spreads costs and revenues across the system, at least nominally aligning the incentives of all involved. The Kaiser structure, for instance, automatically rewards the physicians for efficiency and effectiveness: Half of the system margin (profit) every year goes directly to the Permanente Medical Groups.

Subscription (mini-cap). Payment per patient (or employee) per month buys all care for a specific condition, such as diabetes or back care. This drives efficiencies (to keep the cost down) as well as effectiveness (to keep the contract).

Classic fee-for-service. This will likely always remain as some portion of your revenue. Its incentives oppose those of most other revenue streams.

The Problem

The organization that is prepared for these different streams is most likely a different kind of organization from what you now have.

The problem you are trying to solve is not making the most money, or making your life as comfy as possible, or saving particular jobs, or even saving your institution. The reason your problem is so hard is that it is a five-dimensional Rubik’s cube. Imagine these dimensions crossing and interacting:

  • How do we heal the sick and keep people well, with …
  • the resources, capacities, physical plants and people that we have, and …
  • the revenue streams we have, can capture or can create, given …
  • the wants, needs and attitudes of various large payers in the area, and …
  • the various other payers in the region, state, nation or world that might bring business your way.


There are three types of savings possible in a health system:

  1. Doing the same procedures and tests, but as leanly as possible;
  2. Correcting the medical problem using the least expensive and intrusive way possible (substituting medical therapy for unnecessary surgery, for instance); and
  3. Preventing the need for doing anything at all.

Under fee-for-service, all three are a cost to the hospital. This is why we are not very skilled at capturing and reducing costs. Under any other payment system, we need to get fierce and intentional about capturing, characterizing and cutting internal costs.

Is this possible? Imagine going through every service, from performing a pregnancy ultrasound to excising a brain tumor, and just doing the arithmetic. Run down every step of every task, the labor cost of the person doing it, the actual cost of the supplies involved, then throw in something for overhead and for margin. Add it up to determine how much it costs you to install a hip or repair a hernia. That’s “time-driven activity-based costing” or TDABC.

For the last few years Harvard’s Michael Porter and Robert Kaplan have been running exactly such programs at MD Anderson, the Cleveland Clinic, the Mayo Clinic, Boston Children’s, Brigham and Women’s Hospital and other top hospitals.

Rigorous, tough, time-consuming, expensive to do, yes, but combined with lean manufacturing techniques, such analysis can drive real costs down. Organizations find that they do many things that don’t help, or that could be done by someone less highly trained and expensive. MD Anderson, for instance, was able to cut the staff in its pre-operative anesthesia center by 17 percent while seeing 19 percent more patients and while dropping the internal cost by 46 percent with no loss of quality.

If this seems impractically difficult, it’s still where we have to go. We simply must know our real costs, how we can cut them and which costs we can safely cut.

Targeting (market segmentation). An old subject in these columns, more relevant here than ever: Five percent of the patients generate 50 percent of the costs, 1 percent generate 20 percent — and many are in those categories for months and years with poorly addressed chronic problems. Under fee-for-service they are a revenue source, if they have a payer. Under other business models, they are a cost, while driving costs down by taking better care of them is a big revenue source. The algorithm: Find the chronic high-cost patients whose health you can actually affect. Be at risk for their costs. Put a crew on it. Drive the costs down dramatically. Programs at Boeing, at the AtlantiCare Special Care Center in Atlantic City, N.J., and elsewhere prove that you can drive their costs down by 25 percent or more — thereby driving down the costs of the whole population by 12 percent or more.

Outreach. A well-designed, vigorous medical-home outreach program, staffed with real humans in the community, run out of clinics and primary care offices in the community, will do the same thing without the market segmentation. If you call everybody, you are going to spend the most time with those who need the most help. It’s highly efficient: The Vermont Blueprint drove down overall costs for the whole population it served by 12 percent, with a total staff cost of $17 per patient per year. Peanuts. Bupkis. Lost in the noise.

Trust. It’s the least understood business efficiency engine. Outreach that changes people’s lives, gets them compliant with medication, gets them to eat differently or find a way to kick the addiction does not come from cold-calling by unqualified strangers reading scripts. It must be built on trusted relationships, a nurse or doctor who lives in your community and knows you, calling up or coming to see you. Expensive? Highly efficient, because it works.

Docs on board. You need to work strongly with the physicians. This means more than hiring them or buying their practices. It means getting them on board with the new business models, which means finding not only where the costs are, but how those costs become profit across the organization. So primary care physicians who help the bottom line by keeping people out of the ED and the surgical suite should benefit from that and see it as part of their business model.

Population health management. Investigate the special health needs of your population, asking particularly: What turns into medical costs? What would it take to reduce those costs? Develop preventive programs with others in the community. Don’t assume that you can’t make a difference. The Healthy Communities movement and the AHA’s own Association for Community Health Improvement share many success stories of reducing teen pregnancy, drunk driving, addictions and other risky behaviors in communities.

Be your own payer. All this makes more sense with your own insurance arm. This can be expensive and difficult to build. Health insurance is a significantly different business. The risks of getting it wrong are large. But it allows you to operate as a much more integrated business, and reap profit from your savings. Many of the most progressive health care organizations have done this, including Sharp, Sutter, Intermountain, Geisinger and Scripps. Some organizations, such as Nebraska Medical Center and Methodist Health System in Omaha, have joined together to build regional insurance companies.


You must take leadership. Others will carve out pieces that work for them (such as urgent care, specialty clinics and other limited money-making operations). They listen to station WII-FM (“What’s In It For Me”). In fact, a good rule of thumb is that any cost-cutting or regulatory constraints will be received as a matrix for schemes to make more money and build bigger empires. Expect this.

Hospitals and health systems, as the biggest game in town, must think, act and lead at the regional system level. If you don’t, you will be left with only what no one can make profitable. This is the reactive path of doing as little as possible.

Engage seriously with other regional players — other hospitals and health networks, payers, employers, local and state governments. When you can, form larger entities or affiliations to relocate some of the risk more broadly.

Engage the unions. Help them understand where you need to go and why. Engage everyone you might think of as an adversary, because you need them. Well-led people will pitch in (many of them) if there is a goal, if the path makes sense, if they understand that the need is dire.

The efficiency of trust is even more important in leadership. Be transparent. The new competitive environment has no room for corrupt relationships siphoning off resources for private use.

Management is a lived, human process. Speak plainly and seriously. Drop the biz-speak consultant-y jargon that Very Serious People use. Just say what’s real.

Some of you will succeed and transform your businesses. Many of you will not — and your businesses will be closed, or sold to some larger entity that can do it better, or to a hedge fund that will strip mine it. Or it will limp along on handouts, failing to provide excellent care to the thousands who depend on it. You have to choose. You have to believe that it is not impossible, and help others to see that it is not impossible.

Now is the time; where you are is the place. Engage.


What About the Poor?

by joeflower on January 28, 2014

Hospitals need to overhaul their processes so they can help the un- and under-insured stay healthy.

Many people running health care institutions tell me that they have been fighting the fight, learning to be nimble, transforming their cultures, making big changes as the landscape rearranges itself like a really bad day along the San Andreas Fault. But in comparison with the actual scale of the problems, most of the business models and strategies in health care have been sleeping like overfed dogs. It’s wake-up time in America.

Nowhere is the problem defined more clearly than in this question: How can we deal with the tens of millions of new Medicaid recipients, the tens of millions of still-uninsured poor, and the increasing numbers of the underinsured?

Today’s hospital executives formed their careers around the “volume” question: “How do we get more and better-paying customers into and through our system?” This is a different era. Most markets do not have enough medical care to go around, between an aging population, expanded Medicaid in 25 states, and expanded numbers of insured in all states.

When there is not enough of what you are selling to go around, operating inefficiently leads to choking on volume. In order to survive under any business model we must get the volume down and the value up.

First: What can we expect in the coming years?

The Future of Medicaid, the Uninsured and the Underinsured

Medicaid numbers are astonishing if you are not used to them. Even before the projected expansion, at some time during an average year about 72 million people, close to a quarter of all Americans, are on Medicaid. At any given moment, it’s over 50 million. Medicaid is an open-ended program: When more people are eligible, or sick, or have more complex diseases, the states and the federal government pay more. By law, states have to provide certain minimum benefits for certain defined poor populations, such as children, pregnant women, the disabled and the elderly. The only control states have over Medicaid costs is to cut reimbursements and to control utilization by making health care massively inconvenient to access.

The economy. The economy appears to have undergone real structural change. In this new economy a lower proportion of the working age population is able to find work with a living wage or start a sustaining business. Income inequality is still growing, with almost all of the new wealth created in the slowly recovering economy going to those few who are already well off. So we can expect more Medicaid-eligible people every year.

Expansion. In over half the states, Medicaid eligibility has been expanded by the Affordable Care Act (ACA) to include all adults with income below 138 percent of the federal poverty level (FPL). More states will likely accept the expansion. Turning away federal money that would benefit your citizens and pay for thousands of jobs (as studies show) may be ideologically pure, but politically and economically it is a very shaky stance. It will become shakier as people in neighboring states reap the benefits, while yours do not.

Will those newly covered individuals use more health care or less? Contrary to a common assumption, studies show that just getting people covered does not in itself improve their health, and those newly insured patients will likely use the emergency department (ED) 40 percent more than they did when uninsured, unless the system finds some less expensive way to serve their needs. The “system,” in this case, is you.

Underinsured. The ACA will actually expand the ranks of the underinsured (those whose insurance is weak enough that they will often act as if they are uninsured). The “bronze” plans cover only 60 percent of most expenses; the “silver” only 70 percent, well below the 80 percent typical of corporate plans, with much higher deductibles. The feds also allow, in fact encourage, states to add deductibles and co-pay requirements to Medicaid even for the poorest. And many states that are expanding eligibility are actively cutting reimbursements, narrowing networks and reducing benefits.

Out-of-luck demographics. At the same time many people, especially in the just pre-Medicare demographic, will not want to accept Medicaid, because they still have some assets, typically equity in a house, that Medicaid would require them to liquidate and “spend down.” In the states that do not expand Medicaid eligibility, the uninsured non-disabled adult below 138 percent of the FPL is just plain out of luck, with no ACA subsidies for insurance, but is still hit with the ACA tax penalty.

So expect still substantial numbers of uninsured — 26 million by 2016 by Congressional Budget Office estimates — as well as growing Medicaid rolls in all states, even those that do not expand eligibility.

Reform? “Deficit hawk” politicians focus on Medicaid because it is growing and open ended. Proposals to reform Medicaid largely would make it into block grants to the states, which Congress could then throttle downward. No proposed reforms contemplate putting more money into Medicaid. Under any reasonably expectable political scenario we can expect ever-narrowing reimbursements.

Health care execs can be forgiven for feeling that they are in some zombie movie, pursued by teeming masses of people with Medicaid coverage, or no coverage at all. But it’s time to stop hiding. It’s time to leave behind the old tactics of divert, dump and deny once and for all, and to push instead for radical new ways of providing health care — good, quality care — to those who can least afford it.

What to do?

Get Costs Down

Making your operations lean and smart is important under any business model, for any revenue stream. In dealing with the uninsured and Medicaid recipients, it is paramount.

The core of this effort is redesigning workflow and processes, right from the threshold of the ED (usually the gateway for 70 percent to 80 percent of your patient flow), through all in-patient and outpatient services, labs, pharmacy. It’s about instituting “split-flow” fast triage patient handling at the threshold, getting the door-to-doc time from the national average of 30 minutes down to 10 minutes or less, getting the ED length of stay down below four hours, and getting the percentage of patients who leave your ED waiting room in frustration down to zero.

This attempt pushes back on workflows across the institution, so it is about robust and powerful systems of bed control and patient tracking, about lean and efficient housekeeping and transportation, about high-tech instant registration protocols.

There is no way to survive the coming rise in Medicaid recipients, aging boomers, still-uninsured and underinsured without a lean, efficient organization.

Prepare for “Value-Based Insurance”

Some states such as South Carolina and Michigan are applying the “value-based” rubric to Medicaid: Rather than pay set percentages of a hospital’s price for whatever is on offer, the state will pay a greater percentage of the cost for clearly valuable therapies and tests, and less or zero for therapies and tests of doubtful utility, such as induced labor or caesareans before 39 weeks of gestation, complex back surgery for simple back pain, or arthroscopic knee surgery to repair a torn meniscus.

Oregon introduced such a plan for its public employees in 2010. Since then, premiums that had been rising an average of 7 percent per year have been dropping 0.5 percent per year.

This practice will spread further in both private insurance and Medicaid, along with similar practices such as reference pricing, paying for bundles, and domestic medical tourism. If you are profiting from procedures likely to be deemed unnecessary or “less than optimal,” or priced above the market, these practices will hit you hard. But in the coming era of medical scarcity, you need to free up capacity to do what truly adds value.

Prepare for “Value-Based Medicine”

Ask yourself the market question: What does this portion of the market actually need? What is needed is not just reactive, episodic, high-cost treatment; it is active health management. So give them instead what they truly need: Divert these populations into “value-based” programs.

Master the accountable care organization (ACO) and ACO-like organizational schemes that do better by doing more on the front end, closer to the customer. (Consider your first try a prototype. It will not work right out of the box. Its purpose is to see how to build the second and third versions that will work better.) Build medical homes specifically aimed at these populations. Cooperate as much as possible with federally qualified community health clinics in your area.

Build trust-based disease management programs and visiting nurse programs. “Trust-based” means actual face-to-face encounters with real people whom the patient will trust based on their expertise, degrees and certifications, their prior relationship, and their employer (the medical group or the health system, not the insurance company). Examples to model include the Iowa Chronic Care Consortium, the Camden [New Jersey] Coalition of Healthcare Providers, and the Yakima Valley Farmworkers Cooperative’s chain of low-cost clinics.

The Center for Medicaid and CHIP (Children’s Health Insurance Program) Services is giving grants for building similar programs targeting “super utilizers” to get costs down by improving their health.

Offer insurance yourself or in alliance with a not-for-profit cooperative (like Molino in many states) that is tailored to the low-income population, tied to the low-cost clinics, and shaped to finance the trust-based health management programs.

Lobby for Reform

First, if your state does not yet accept the federal Medicaid expansion, continue to lobby for that. Frame it not as “save the poor people” legislation but as “save our hospitals and support the economy” legislation. But further: At the state and federal level, lobby for rule changes that shift Medicaid dollars from episodic acute fee-for-service treatment to “value-based” programs that care for the poor more efficiently.

Further: Work with hospitals in your state, with your state health department, and the Centers for Medicare & Medicaid Services, to maximize the value of the public health dollar by establishing something like Oregon’s Coordinated Care Organizations. CCOs are “hyper-local,” with 15 of them around the state. They can spend Medicaid money not only on coordinating traditional reactive medical care, but also on remediating conditions that lead directly and measurably to illness. They can buy an air conditioner for an elderly poor woman who would otherwise be hospitalized with congestive heart failure in a heat wave, or pay for mold remediation, often through the hands-on, face-to-face work of “patient guides” who put the “trust” in “trust-based.”

Stop Charging the Uninsured Poor Full “Billed Charges”

Chief financial officers of hospitals and health care institutions dismiss “charge master rates” as phantoms that “nobody pays.” They are merely a starting point for negotiations with payers. But there is one group that is commonly billed full freight: the uninsured poor, those least able to pay up. Some states, including California, Illinois, Maryland, Minnesota, New Hampshire and New York, have passed legislation shielding the uninsured poor from these “phantom” rates that currently average about 400 percent of Medicare rates.

California, in its Hospital Fair Pricing Act passed in 2006 and expanded in 2011, requires that billing for anyone treated in or admitted through the ED whose household income is at or below 350 percent of the FPL (or whose out-of-pocket medical expenses for the year already exceed 10 percent of their income) can be billed no more than the most generous government payer would be billed — in effect, at Medicare rates. The act does not require anyone to give free care, yet some 97 percent of reporting California hospitals have gone further, pledging free care to anyone whose income is at or below 100 percent of FPL. This act evidently has not led California hospitals into financial disaster, and has helped many poor uninsured patients avoid medical bankruptcy.

To avoid putting themselves at a competitive disadvantage and attracting more than their share of the uninsured or underinsured, it is best for hospitals not to go it alone but to lobby for such legislation to be passed in their own state.

The Path Forward

The path forward is not clear. What is clear is that many health care organizations will not survive the waves of newly insured, underinsured and Medicaid beneficiaries if they continue to treat them reactively, in the most expensive way possible. We simply must try bold new methods and programs. We must reshape ourselves not just to treat and bill, but to give the maximum value for every dime of tax money by helping poor people get and stay healthy through any means necessary.


(Originally published by the American Hospital Association’s Hospitals And Health Networks (H&HN) Daily on January 28, 2014)

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