About Alan:

Alan received a Masters in Accounting from the University of Houston, became a CPA and a Fellow in HFMA. He had a lengthy career in Healthcare Finance serving in positions such as: VP of Finance of the Healthcare Div. of HAI, VP of Finance for Cardinal Glennon Children's Hospital and CFO of Adena Health System. He specialized in budgeting, strategic financial plan development, operational analysis and management reporting systems.

This would seem to be good training for his role of "watch dog" of the Federal Budget.

Wednesday, January 23, 2019

"Medicare For All?"

The new cry is for the United States to adopt a "Medicare For All" healthcare program.  The latest polls say a majority of Americans support just such a program.  It sounds good, doesn't it?  But do they really understand what that would mean?

I'm now old enough to be covered by Medicare so why wouldn't I be in favor of "Medicare For All"?

I started my first job in Healthcare Finance at Doctors Hospital in Conroe, Texas back in August, 1976.  It was a small hospital attached to the Sadler Clinic and part of the Hospital Affiliates International chain.  I was about to get my Masters in Accounting from the University of Houston.  In a short 10 months I was promoted to be the hospital's Controller.  (The controller was the highest level of finance professional at a HAI hospital as there were regional and corporate staff to handle investment and borrowing responsibilities.)

One of my duties was to develop the information necessary to complete our Medicare and Medicaid cost report.  Both programs were in their initial forms and were designed to reimburse the cost of caring for their patients.  The cost reports were complicated reports designed to determine the "correct" costs associated with each program.  Payments were actually made in bi-weekly amounts and a final settlement was made once the cost report had been completed and audited.  As you can imagine, the process of completing, filing and going through a cost report audit was complicated and added to a hospital's administrative expense.

It wasn't long before Congress became alarmed at the rate of increase in outlays for the Medicare program.  To help control it they began defining some of hospitals' actual costs as "non-reimbursable".  Non-reimbursable costs were eliminated on the cost report.  That didn't change the fact that they were actual costs for the hospital, but just the fact that Medicare and Medicaid wouldn't pay for them.  The most famous, or was it infamous, of those was the cost of telephones and televisions in patient rooms.  Because hospitals weren't reimbursed for those costs they instituted per diem charges if patients chose to have a telephone and tv in their room.  When other actual costs were disallowed, it meant hospitals had to increase their charges to other patients to make up for the lost revenue.

Soon Congress found there weren't enough expenses they could disallow and in the 80's they came up with a new scheme to bring control to the cost of the Medicare & Medicaid programs.  They devised a system that would reimburse hospitals a blended rate that included a hospital specific component, a regional component and a national component.  Over time it was designed to reimburse all hospitals a similar rate eliminating the huge difference that was paid for Medicare patients throughout the country.  It took Congress one year to back off the transitioning to the national rate, despite many hospitals already incorporating that new scheme into their strategic planning.  The percentage of actual cost of caring for Medicare & Medicaid patients reimbursed by the programs continued to decrease resulting in more shifting of costs to other patients.

In the early 90's Congress came up with a brand new scheme for prospective payment rates based on Diagnosis Related Groups (DRGs).  This scheme was designed to reimburse all hospitals the same amount for similar care given.  At the same time there were new administrative burdens placed on hospitals and doctors, increasing their costs.  Hospitals that wanted to participate in the Medicare program were also forbidden from transferring patients without insurance to county facilities.  That was the despite the fact that most county facilities were established to care for uninsured and had tax support to help cover their operating costs.  These changes not only increased the operating costs of the hospitals, but saw the percentage of actual costs of care reimbursed by Medicare and Medicaid decrease.  Obviously that resulted in even more cost shifting to other patients.  There have been many other changes made in an attempt to slow down the overall growth of the cost of those programs to the Federal Government and each time it has resulted in more cost shifting.  Its gotten to the point where the Medicare and Medicaid reimburse far less than full cost to providers.

To step back and summarize, the history of the Medicare and Medicaid programs has been one of reducing the percentage of actual costs of caring for those programs' patients, while increasing the administrative burdens borne by the providers, to the point that reimbursement levels are well below average cost.  And despite all that, the Federal outlays for those programs has gone up dramatically.  In fact, nearly 50% (48.8%) of all the outlays for those programs (1966 to 2017) was spent in just the last ten years.

So what would happen if we went to a "Medicare for All" system of healthcare for the United States.  One of two things would occur.

1. The Federal Government would have to dramatically increase the level of reimbursement it made to providers since their current level is well below the cost of caring for patients.  This would dramatically increase Federal outlays at a time we're running huge deficits.

2. The level and amount of healthcare provided to patients/the public would have to be decreased dramatically.

In all likelihood, the real result would be a combination of the two.

Is the public really expecting a dramatic decrease in the quantity and quality of the healthcare they receive when they support a "Medicare for All" healthcare program?  And are they willing to support the level of taxes necessary to fund the increased Federal Outlays.  In just the last ten years the increased outlays for the current Medicare and Medicaid programs accounted for 70% of the $10.2 trillion added to the Federal Gross Debt!







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