Category Archives: Cost Shifting

Obama And Trump’s First 100 Days Of Healthcare Policy: A Comparison

Posted on by • Posted in 2026 Mid Term Election Issues, 2028 Election Issues, ACA, Cost Reduction, Cost Shifting, Employee Layoffs, Health Insurance Coverage Adequacy, Health Policy, Healthcare Reform, Planned Parenthood, Underinsured, Uninsured, US Agency for International Development (AID), World Health Organization (WHO) • Leave a comment

https://www.forbes.com/sites/robertpearl/2025/04/27/obama-and-trumps-first-100-days-of-healthcare-policy-a-comparison/

In chaos theory, there’s a concept known as the butterfly effect—the idea that a seemingly small action, occurring at just the right moment, can trigger ripple effects that grow across time and space. A butterfly flaps its wings in Brazil, the saying goes, and a tornado forms weeks later in Texas.

Presidential decisions can carry the same weight, especially those made in the first 100 days of a new administration. Time and again, these early choices unleash far-reaching consequences that reshape a nation.

As Donald Trump wraps up the opening stretch of his second term, his healthcare-focused executive actions underscore the consequentiality of this early window. And when compared with Barack Obama’s approach in 2009 (the last time a president pursued major healthcare reforms right out of the gate), the contrast becomes even more striking.

Two presidents. Two defining moments. And one fundamental question that both men had to answer in the first 100 days: Where should healthcare reform begin — by expanding coverage, improving quality or cutting costs?

Crisis, Control And A Key Healthcare Choice

The idea that a president’s first 100 days matter dates back to Franklin D. Roosevelt. In 1933, during the depths of the Great Depression, FDR passed a wave of New Deal reforms that redefined the role of government in American life.

Ever since, the opening months of a new presidency have served as both proving ground and preview. They reveal how a president intends to govern and what he values most.

For both presidents Obama and Trump, their answer to the healthcare question — where to begin? — would shape what followed. Obama chose to expand coverage. Trump has chosen to cut costs. Those decisions set them on opposing paths. And with every subsequent policy decision, the gap between their contrasting approaches only grows.

’09 Obama: Health Coverage And Congressional Action

In the quiet calculus of early governance, President Obama concluded that without health insurance coverage, access to high-quality medical care would remain out of reach for tens of millions of Americans.

Confronting a system that left 60 million uninsured, he believed that expanding access to coverage was a vital first step — not only to improve individual health outcomes, but to create a healthier nation that ultimately would require less medical care (and spending) overall.

That belief was grounded in lived experience: his mother’s battle with cancer and the insurance disputes that followed, as well as his years as a community organizer working with families who couldn’t afford medical care.

He also understood that only Congressional legislation — rather than executive action — would make those gains durable. So, in his first 100 days, he pursued a strategy grounded in consensus-building. He convened healthcare stakeholders, hosted public healthcare summits, expanded the Children’s Health Insurance Program (CHIP) and proposed a federal budget that included a $634 billion “down payment” on healthcare reform.

’25 Trump: Cost Cutting And Executive Control

Donald Trump didn’t ease into his second term. He charged in, pen in hand. His priorities for the country were clear: cut taxes, impose tariffs and reduce federal spending.

For Trump, speed was of the essence. So, he bypassed Congress in favor of executive orders, downsizing healthcare agencies and dismantling regulatory oversight wherever possible.

At the center of Trump’s domestic agenda is an ambitious income tax overhaul, dubbed the “big beautiful bill.” But passing it will require support from fiscal conservatives in his own party. To offset the steep drop in tax revenue, Trump has signaled a willingness to slash federal spending, starting with healthcare programs.

What Comes Next: Mapping Health Policy Consequences

Presidents make thousands of decisions over the course of a four-year term, but those made in the first few months typically matter most. Both Obama and Trump had to decide whether to prioritize expanding coverage or cutting costs, and that choice would shape the steps that follow.

For Obama, the consequences of his choice were sweeping. His early focus on increasing health insurance coverage laid the foundation for the Affordable Care Act, the most ambitious healthcare reform since Medicare and Medicaid in the 1960s. The ACA provided affordable insurance to more than 30 million Americans, offered subsidies to low- and middle-income families, cut the uninsured rate in half and guaranteed protections for those with preexisting conditions. The law survived political opposition, legal challenges and subsequent presidencies.

However, those gains came at a price. Annual U.S. healthcare spending more than doubled — from $2.6 trillion in 2010 to over $5.2 trillion today — without significant improvements in life expectancy or care quality.

Trump’s early decisions are reshaping healthcare, too, but in ways that reflect a very different set of priorities and a sharply contrasting vision for the federal government’s role.

1. Cost-Driven Actions: Reducing Government Healthcare Spending

Guided by a business-oriented focus on cost containment, Trump has sought to reduce the federal government’s role in healthcare through sweeping budget and staffing changes. Among the most significant:

  • Agency layoffs: The Department of Health and Human Services has initiated mass layoffs across the CDC, NIH and FDA, reducing staff capacity by 20,000 and cutting critical programs, including HIV research grants and initiatives targeting autism, chronic disease, teen pregnancy and substance abuse.
  • ACA support rollbacks: The administration slashed funding for ACA navigators and rescinded extended enrollment periods, making it more difficult for individuals (especially low-income Americans) to obtain coverage.
  • Planned Parenthood and family planning cuts: Freezing Title X funds has reduced access to reproductive healthcare in multiple states.
  • Medicaid at risk: A proposed $880 billion reduction over 10 years could eliminate expanded Medicaid coverage in many states. Additional moves (like work requirements or application hurdles) would likely reduce enrollment further.

2. Cultural And Executive Power Moves: Redefining Government’s Role In Health

While cutting costs has been the central goal, many of Trump’s actions reflect a broader ideological stance. He’s using executive authority to reshape the values, norms and institutions that have defined American healthcare. These include:

  • Withdrawal from the World Health Organization (WHO): The administration formally ended U.S. participation, citing concerns about funding and governance.
  • Restructuring USAID’s health portfolio: Multiple contracts and programs related to maternal health, infectious disease prevention and international public health have been ended or scaled back.
  • Policy changes on federal language and research topics: Executive directives have modified how agencies are allowed to address topics related to gender and sexuality, leading to the removal of LGBTQ+ content from health resources and websites.
  • Reorganization of DEI programs: Diversity, equity and inclusion initiatives have been rolled back or eliminated across several federal departments.

The Likely Consequences Of Trump’s First 100 Days

President Trump’s early actions reveal two defining trends: cutting government healthcare spending and reshaping federal priorities through executive authority. Both are already changing how care is accessed, funded and delivered. And both are likely to produce lasting consequences.

The most immediate impact will come from efforts to reduce healthcare spending. Cuts to Medicaid, ACA enrollment support and family planning programs are expected to lower insurance enrollment, particularly among low-income families, young adults and people with chronic illness.

As coverage declines, care becomes harder to access and more expensive when it’s needed. The results: delayed diagnoses, avoidable complications and rising levels of uncompensated care.

His second set of actions — including reduced investment in federal science agencies — will slow drug development and weaken the infrastructure needed to respond to future public health threats.

Meanwhile, a more constrained and domestically focused healthcare agenda is likely to diminish trust in federal health agencies, limit access to culturally competent care and produce a loss of global leadership in health innovation.

The U.S. Constitution gives presidents broad power to chart the nation’s course. And the decisions made in their first 100 days shape the trajectory of an entire presidency.

One president decided to prioritize coverage, while a second chose cost-cutting. And like the flap of a butterfly’s wings, these early actions generate ripples — expanding in size over time and radically altering American healthcare, for better or worse.

Gaming the System: Medical Loss Ratios and How Insurers Manipulate Them

Posted on by • Posted in ACA, Cost Shifting, Cost Transparency, Health Insurance Industry, Manipulative, Medical Loss Ratio (MLR), Profit Margin, Profit Motive, Quality Incentives • Leave a comment
https://healthcareuncovered.substack.com/p/gaming-the-system-medical-loss-ratios?utm_source=post-email-title&publication_id=255152&post_id=157970302&utm_campaign=email-post-title&isFreemail=true&r=59t65&triedRedirect=true&utm_medium=email

Last week, I made my once a decade trek to a dealership to buy a new car. I did my research in advance (and even negotiated the price) so I was hoping for a stress-free experience. 

It was – up until the point where I got locked in the finance manager’s office for “the talk”. You know, the one where you are made to feel like a neglectful parent unless you pony up for all the fixin’s – everything from nitrogen filled tires to paint protection (just in case I encounter a flock of migratory geese on the drive home).  I shook my head no about ten times before we got to the pre-paid maintenance plan options. I decided to be polite and listen (plus I was curious since I was purchasing a car from a manufacturer notorious for costly repairs). As compelling as it was to pay nearly $5,000 to what ultimately would amount to a few tire rotations for my electric vehicle, I held firm. The finance manager angrily handed me my signed documents and whisked me out of his office.

I guess I can’t blame car dealers for applying massive mark-ups for services that are inexpensive to provide. Except similar financial chicanery is currently playing out in our health insurance system. If you swap out the finance manager for a health insurer and replace me with the average everyday consumer, the dealer’s tactics are analogous to how insurers game medical loss ratio (MLR) requirements (except as a health care consumer, you can’t say “no”). 

A bit of background is in order to understand why I thought about health insurance and car dealers in the same breath.

Insurance companies are required to spend a certain percentage of money they get from premiums on medical costs and quality improvement (QI); this is known as the medical loss ratio (MLR). If companies do not meet this ratio (usually 80-85%, depending on the product), they must refund the difference in the form of a rebate, or reduction in future premiums, to consumers.

Like any for-profit corporation in America today, a health insurer wants to avoid giving money back to consumers. Therefore, insurers have become adept at manipulating their MLRs through various accounting and financial engineering techniques. This manipulation optimizes their ability to meet MLR thresholds and avoid paying rebates, which runs afoul of its intended purpose: to ensure that patients receive the appropriate level of care.  

So how do insurers game the system, and what evidence exists for this activity?

The current MLR formula is:

Health insurers do not control taxes and fees, but they can easily engineer the other variables. Below, I’ll explain how.

Step 1: Quality Improvement (QI) Expenses

The definition of allowable QI expenses is broad and includes activities to improve outcomes, patient safety, and reduce mortality (mom and apple pie stuff). Insurers played a big role in writing the MLR regulations after Congress enacted legislation and made sure they’d have wide latitude in what expenses are classified as QI (akin to the car dealer “option” list) and what product segments they assign them to. 

Looking at reported QI expenses sheds light on this practice. QI expenses vary between insurers.  But they also vary widely for the same insurer from year to year (even after controlling for geography and product segment). In large part, this is attributable to financial engineering. QI costs can be effectively “transferred” on the income statement from one product segment to another, by adjusting the pro rata weightings). This enables them to optimize MLR performance across their insurance portfolio (i.e. by taking from a bucket with excess medical costs and putting it in another with insufficient costs) in a way that maximizes benefit to the insurer and is camouflaged from regulators and consumers. This is language from a recent UnitedHealth Group filing with the Securities and Exchange Commission: “Assets and liabilities jointly used are assigned to each reportable segment using estimates of pro-rata usage.”

Annual QI expenses across four insurers in Florida in the small group market.

Although these QI percentages are small, the associated dollar amounts are large. In 2022, UnitedHealth, Humana, and Aetna reported $494 million, $550 million, and $395 million respectively in allowable QI expenses for their national plans. While there is some legitimate QI activity at insurers (e.g., pharmacists who identify high risk medications in the elderly), the reality is that much of the QI work is already heavily resourced within provider organizations, where it is more effective. Insurers also can (and do) count “wellness and health promotion activities” despite limited evidence these programs improve health outcomes and are more often used by insurers as marketing tools.

Step 2. Health Care Claims

The other variable that insurers can manipulate is claims costs. The more an insurer is vertically integrated, the easier it is. The prime example is UnitedHealth, which has an insurance arm (UnitedHealthcare) and a big division that encompasses medical services, among many other things (Optum), as well as various other subsidiaries. Optum Health and Optum Rx receive a significant portion of their revenue from UnitedHealthcare for providing services like care and pharmacy benefit management to people enrolled in its health plans. In fact, the amount of UnitedHealth’s corporate “eliminations,” (meaning inter-company revenue that is reported on their consolidated financial statement) has more than doubled over the past five years (from $58.5 billion to $136.4 billion). The proportion of revenue Optum derives from UnitedHealthcare versus unaffiliated entities has increased by nearly 50% over the same period.  A similar trend is playing out at every major insurer.

Take the example of the insurance company Aetna, the PBM CVS Caremark, and CVS Pharmacy, which are all vertically integrated and owned by CVS Health. If a patient goes to a CVS store to fill a prescription for Imatinib, a generic chemotherapy drug, the total cost the patient and insurance company pay is $17,710.21 for a 30-day supply. The same drug is sold by Cost Plus Drugs for $72.20 (the cost is calculated by adding the wholesale price and a 15% fee). When the patient fills the prescription at a CVS retail pharmacy, CVS Health can record that the patient paid a medical claim cost of $17,710.21 (even though the cost to acquire the drug is $70) and the remaining $17,640 can be retained as profits disguised as medical costs. 

Insurers’ extensive acquisition of physician practices also facilitates gamification of the MLR via its ability to pay capitation (a set amount per person) to a risk-bearing provider organization (RBO) it owns, such as a medical group. This enables the insurer to lock in a set amount of premium as “medical expense” (usually around 85%) with the downstream provider group “managing” those costs.  There’s a loophole, however. While the insurer has technically met its MLR requirement, the downstream RBO is subject to far fewer regulations on how it spends the money, which makes it easier to generate profits by skimping on care.  

The regulations on RBOs vary by state. In many cases, while RBOs need to meet minimum capital requirements, they are not subject to the same MLR provisions as insurers. For a vertically integrated insurer that gets a huge amount of revenue from taxpayer-supported programs like Medicare Advantage and Medicaid, this essentially means that (1) the Center for Medicare and Medicaid Services puts the money into the insurer’s right pocket, (2) the insurer moves it to the left pocket, and (3) CMS checks the right pocket – and just the right pocket – at the end of the year to make sure it’s mostly empty (without regard to the fact that the left one may be busting at the seams).

The good news is there are ways to address these issues, both through updating the MLR provisions in the Affordable Care Act (which are long in the tooth) and more rigorous and comprehensive reporting requirements and regulation of vertically integrated insurers.  

Just like I don’t want car dealers pushing unnecessary add-ons to increase their profit margins, consumers deserve that the required portion of their hard spent premium dollar actually goes toward their health care instead of further enriching huge corporations, executives, and Wall Street shareholders.

How America skimps on healthcare

Posted on by • Posted in ACA, Cost Management, Cost Reduction, Cost Shifting, Delayed Care, Denial, Denial Rates, Employee Benefits, Health Insurance Coverage Adequacy, Health Insurance Denial, High Deductible Health Plans, Labor Spend Management, Medicaid, Medical Loss Ratio (MLR), Medicare, Prior Authorization, Shrinkflation, Utilization Trends • Leave a comment

https://www.linkedin.com/pulse/how-america-skimps-healthcare-robert-pearl-m-d–p1qnc/

Not long ago, I opened a new box of cereal and found a lot fewer flakes than usual. The plastic bag inside was barely three-quarters full.

This wasn’t a manufacturing error. It was an example of shrinkflation.

Following years of escalating prices (to offset higher supply-chain and labor costs), packaged-goods producers began facing customer resistance. So, rather than keep raising prices, big brands started giving Americans fewer ounces of just about everything—from cereal to ice cream to flame-grilled hamburgers—hoping no one would notice.

This kind of covert skimping doesn’t just happen at the grocery store or the drive-thru lane. It’s been present in American healthcare for more than a decade.

What Happened To Healthcare Prices?  

With the passage of the Medicare and Medicaid Act in 1965, healthcare costs began consuming ever-higher percentages of the nation’s gross domestic product.

In 1970, medical spending took up just 6.9% of the U.S. GDP. That number jumped to 8.9% in 1980, 12.1% in 1990, 13.3% in 2000 and 17.2% in 2010.  

This trajectory is normal for industrialized nations. Most countries follow a similar pattern: (1) productivity rises, (2) the total value of goods and services increases, (3) citizens demand better care, newer drugs, and more access to doctors and hospitals, (4) people pay more and more for healthcare.  

But does more expensive care equate to better care and longer life expectancy? It did in the United States from 1970 to 2010. Longevity leapt nearly a decade as healthcare costs rose (as a percentage of GDP).

Then American Healthcare Hit A Ceiling

Beginning in 2010, something unexpected happened. Both of these upward trendlines—healthcare inflation and longevity—flattened.

Spending on medical care still consumes roughly 17% of the U.S. GPD—the same as 2010. Meanwhile, U.S. life expectancy in 2020 (using pre-pandemic data) was 77.3 years—about the same as in 2010 when the number was 78.7 years.

How did these plateaus occur?

Skimping On U.S. Healthcare

With the passage of the Affordable Care Act of 2010, healthcare policy experts hoped expansions in health insurance coverage would lead to better clinical outcomes, resulting in fewer heart attacks, strokes and cancers. Their assumption was that fewer life-threatening medical problems would bring down medical costs.

That’s not what happened. Although the rate of healthcare inflation did, indeed, slow to match GDP growth, the cost decreases weren’t from higher-quality medical care, drug breakthroughs or a healthier citizenry. Instead, it was driven by skimping.

And as a result of skimping, the United States fell far behind its global peers in measures of life expectancy, maternal mortality, infant morality, and deaths from avoidable or treatable conditions.

To illustrate this, here are three ways that skimping reduces medical costs but worsens public health:

1. High-Deductible Health Insurance

In the 20th century, traditional health insurance included two out-of-pocket expenses. Patients paid a modest upfront fee at the point of care (in a doctor’s office or hospital) and then a portion of the medical bill afterward, usually totaling a few hundred dollars.

Both those numbers began skyrocketing around 2010 when employers adopted high-deductible insurance plans to offset the rising cost of insurance premiums (the amount an insurance company charges for coverage). With this new model, workers pay a sizable sum from their own pockets—up to $7,050 for single coverage and $14,100 for families—before any health benefits kick in.

Insurers and businesses argue that high-deductible plans force employees to have more “skin in the game,” incentivizing them to make wiser healthcare choices.

But instead of promoting smarter decisions, these plans have made care so expensive that many patients avoid getting the medical assistance they need. Nearly half of Americans have taken on debt due to medical bills. And 15% of people with employer-sponsored health coverage (23 million people) have seen their health get worse because they’ve delayed or skipped needed care due to costs.

And when it comes to Medicaid, the government-run health program for individuals living in poverty, doctors and hospitals are paid dramatically lower rates than with private insurance.

As a result, even though the nation’s 90 million Medicaid enrollees have health insurance, they find it difficult to access care because an increasing number of physicians won’t accept them as patients.

2. Cost Shifting

Unlike with private insurers, the U.S. government unilaterally sets prices when paying for healthcare. And in doing so, it transfers the financial burden to employers and uninsured patients, which leads to skimping.

To understand how this happens, remember that hospitals pay the same amount for doctors, nurses and medicines, regardless of how much they are paid (by insurers) to care for a patient. If the dollars reimbursed for some patients don’t cover the costs, then other patients are charged more to make up the difference.

Two decades ago, Congress enacted legislation to curb federal spending on healthcare. This led Medicare to drastically reduce how much it pays for inpatient services. Consequently, private insurers and uninsured patients now pay double and sometimes triple Medicare rates for hospital services, according to a Kaiser Family Foundation report.

These higher prices generate heftier out-of-pocket expenses for privately insured individuals and massive bills for the uninsured, forcing millions of Americans to forgo necessary tests and treatments.

3. Delaying, Denying Care

Insurers act as the bridge between those who pay for healthcare (businesses and the government) and those who provide it (doctors and hospitals). To sell coverage, they must design a plan that (a) payers can afford and (b) providers of care will accept.

When healthcare costs surge, insurers must either increase premiums proportionately, which payers find unacceptable, or find ways to lower medical costs. Increasingly, insurers are choosing the latter. And their most common approach to cost reduction is skimping through prior authorization.

Originally promoted as a tool to prevent misuse (or overuse) of medical services and drugs, prior authorization has become an obstacle to delivering excellent medical care. Insurers know that busy doctors will hesitate to recommend costly tests or treatments likely to be challenged. And even when they do, patients weary of the wait will abandon treatment nearly one-third of the time.

This dynamic creates a vicious cycle: costs go down one year, but medical problems worsen the next year, requiring even more skimping the third year.

The Real Cost Of Healthcare Skimping

Federal actuaries project that healthcare expenses will rise another $3 trillion over the next eight years, consuming nearly 20% of the U.S. GDP by 2031.

But given the challenges of ongoing inflation and rapidly rising national debt, it’s more plausible that healthcare’s share of the GDP will remain at around 17%.

This outcome won’t be due to medical advancements or innovative technologies, but rather the result of greater skimping.

For example, consider that Medicare decreased payments to doctors 2% this year with another 3.3% cut proposed for 2024. And this year, more than 10 million low-income Americans have lost Medicaid coverage as states continue rolling back eligibility following the pandemic. And insurers are increasingly using AI to automate denials for payment. 

Currently, the competitive job market has business leaders leery of cutting employee health benefits. But as the economy shifts, employees should anticipate paying even more for their healthcare.

The truth is that our healthcare system is grossly inefficient and financially unsustainable. Until someone or something disrupts that system, replacing it with a more effective alternative, we will see more and more skimping as our nation struggles to restrain medical costs.

And that will be dangerous for America’s health.

The next health care wars are about costs

Posted on by • Posted in ACA, Affordability, Cost Management, Cost Reduction, Cost Shifting, Health Insurance Coverage Adequacy, Health Insurance Industry, Health Policy, Healthcare Industry, Healthcare Reform, High Deductible Health Plans, High Drug Prices, High Premiums, High Prices, Out of Pocket Expenses, Political Lobbying • Leave a comment
https://www.axios.com/2022/11/02/health-care-costs-congress-insurance-politics?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

All signs point to a crushing surge in health care costs for patients and employers next year — and that means health care industry groups are about to brawl over who pays the price.

Why it matters: The surge could build pressure on Congress to stop ignoring the underlying costs that make care increasingly unaffordable for everyday Americans — and make billions for health care companies.

[This special report kicks off a series to introduce our new, Congress-focused Axios Pro: Health Care, coming Nov. 14.]

  • This year’s Democratic legislation allowing Medicare to negotiate drug prices was a rare case of addressing costs amid intense drug industry lobbying against it. Even so, it was a watered down version of the original proposal.
  • But the drug industry isn’t alone in its willingness to fight to maintain the status quo, and that fight frequently pits one industry group against another.

Where it stands: Even insured Americans are struggling to afford their care, the inevitable result of years of cost-shifting by employers and insurers onto patients through higher premiums, deductibles and other out-of-pocket costs.

  • But employers are now struggling to attract and retain workers, and forcing their employees to shoulder even more costs seems like a less viable option.
  • Tougher economic times make patients more cost-sensitive, putting families in a bind if they get sick.
  • Rising medical debt, increased price transparency and questionable debt collection practices have rubbed some of the good-guy sheen off of hospitals and providers.
  • All of this is coming to a boiling point. The question isn’t whether, but when.

Yes, but: Don’t underestimate Washington’s ability to have a completely underwhelming response to the problem, or one that just kicks the can down the road — or to just not respond at all.

Between the lines: If you look closely, the usual partisan battle lines are changing.

  • The GOP’s criticism of Democrats’ drug pricing law is nothing like the party’s outcry over the Affordable Care Act, and no one seriously thinks the party will make a real attempt to repeal it.
  • One of the most meaningful health reforms passed in recent years was a bipartisan ban on surprise billing, which may provide a more modern template for health care policy fights.
  • Surprise medical bills divided lawmakers into two teams, but it wasn’t Democrats vs. Republicans; it was those who supported the insurer-backed reform plan vs. the hospital and provider-backed one. This fight continues today — in court.

The bottom line: Someone is going to have to pay for the coming cost surge, whether that’s patients, taxpayers, employers or the health care companies profiting off of the system. Each industry group is fighting like hell to make sure it isn’t them.

Are you ready for price transparency?

Posted on by • Posted in Center for Medicare and Medicaid Services (CMS), Cost Management, Cost Reduction, Cost Shifting, Health System, Hospital, Hospital Industry, Leadership, Medicaid, Medicare, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Planning, Price Transparency, Strategy • Leave a comment

https://interimcfo.wordpress.com/2020/10/22/are-you-ready-for-price-transparency/

Exploring the Fundamentals of Medical Billing and Coding

Abstract:  This article focuses on the correct strategic response to the impending implementation of price transparency on New Year’s Day of next year.

I have stated before that I have multiple articles in process at any given time.  Some of them have been ‘in process’ for years because newer topics sometimes rise to the queue’s top.  Price transparency is an example of such a case.  I have a friend who is developing AI-enabled solutions to help organizations respond to price transparency government diktats.  Few people beyond healthcare CFOs, healthcare financial consultants, and accountants have any useful understanding of how convoluted hospital pricing has become due to decades of ill-conceived government policy for the most part.

Another problem is endless confusion over terms.  People frequently interchange the terms ‘price’, ‘cost’, ‘payment’, and ‘reimbursement’ in situations where the polar opposite is true on the other side of the issue.  In other words, ‘cost’ to a payor is price or reimbursement to a provider.

Anyway, my friend’s questions finally inspired me to go to the Federal Register, acquire the final rule, and begin the process of learning where government is headed with these regulations.  There are probably at least fifty diatribe angles I could launch into over the final rule, but I will confine my rant to only a couple of points.  

First, the final draft of the rule is ‘only’ 331 pages long. The three-column final rule in the Federal Register is ‘only’ 83 pages long.  That pales compared to Obamacare that is over 1,200 pages long, so by government standards, this is but a trifle of regulation.  

Secondly, some parts of the final rule are actually funny.  For example, CMS estimates that the average hospital will spend only 150 staff hours in the first and 46 staff hours in subsequent years complying with price transparency requirements.  Is it constitutional for government to compel private enterprises to disclose the terms of what they thought were private contracts?  Apparently so.  Once government breaks this ice, will any agreement of any type ever be private?

As I have discussed price transparency with healthcare leaders, I sense that leaders are currently focused on technical compliance with the regulations.  With COVID on their plate simultaneously, they have little capacity to take on strategic financial planning.

The final rule lays out in excruciating detail what providers face complying with the regulation.  Reading the comments and responses is equally entertaining.  CMS repeatedly says something to the effect; we heard your concern, and we’re proceeding as planned anyway.  Litigation brought by the AHA and others has to date been unsuccessful in slowing stopping the price transparency snowball that is now most of the way down the mountain.

So, what are you supposed to do?  The CFO and CIO will work, possibly with consultants’ assistance, to prepare the organization’s data release.  Soon after the release occurs, expect the defecation to hit the rotary oscillator.  The press will call out organizations with high prices, and the rancor over learning what some systems have been able to get from third-party payors will be entertaining, to say the least.  Many people believe that one of the primary motivators of the massive consolidation occurring in the healthcare industry is the market leverage exerted by growing systems on third-party payors to obtain otherwise unachievable reimbursement rates.

Regardless of the course of action following price releases in January, the intended and most likely result of this initiative is to drive prices to a lower common denominator.  A lot of people think Medicare rates will become that benchmark.  There are two significant issues that I did not see addressed in the pricing rule that will have the effect of transferring substantial risk to providers.  

The first is that there will be little if any provision for recognition of complications, comorbidities, and hospital-acquired conditions that can dramatically impact the cost of care in a given diagnosis.  

The second is the elephant in the room. The current pricing system has developed over time to facilitate cross-subsidization among payors.  There is a reason that commercial rates are so high that has nothing to do with the cost of providing care.  I have stated before that, government has turned the entire healthcare industry into a taxing authority to extract tax from commercial payors for the benefit of government payors that routinely reimburse providers below the cost of providing care.  It has been entertaining to watch the reaction of Boards of Directors when they first realize that the healthcare system has been forced by government into a wealth redistribution mechanism.

So, what happens as providers lose the ability to cross-subsidize the cost of care?  Very few hospitals (<10%) are profitable on Medicare, and it is doubtful that any hospital is breaking even on services provided to Medicaid patients.  In my experience, hospital reimbursement for self-pay patients is less than 5% of charges.  If the prices hospitals realize for services start falling and they lose the current ability to cross-subsidize the cost of care . . . . . well, you don’t need an MBA to understand the likely outcome.

What to do?  If (when) prices start falling and providers lose pricing leverage, the only place to turn is operating expense.  Hospitals that have failed to undertake serious, highly focused, and robust operating cost reduction programs that yield quantifiable results may not have a very bright future.  If your organization is not in the bottom quartile of operating cost compared to its peer group and part of your mission is to remain independent, you must be losing sleep.  In a recent article related to COVID Response, I argued that the time has come to get after clinical process variance that is the source of most of the high cost, waste, and abuse in the healthcare system. For most organizations, the days of sourcing cheaper supplies and sending nurses home early are, for the most part, over as there is little if any juice remaining in that lemon.

If, as a leader, you do not have a plan that gets you to break-even on Medicare within the next 12-18 months, you had better have a plan B, something like tuning up your CV.  I can help you with your response to price transparency, working on your CV, or helping manage your next career transition as the case may turn out.  I am as close as your phone.  Best of luck.

Contact me to discuss any questions or observations you might have about these articles, leadership, transitions, or interim services. I might have an idea or two that might be valuable to you. An observation from my experience is that we need better leadership at every level in organizations. Some of my feedback comes from people demonstrating interest in advancing their careers and inspiring content to address those inquiries.

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Why COVID-19’s biggest impact on healthcare may not be until 2022

Posted on by • Posted in 2020 Election Issues, ACA, Business Model, Cost Management, Cost Reduction, Cost Shifting, Employer-Based Health Insurance, Financial Pressure, Financial Viability, Financially Distressed, Health Insurance Coverage Adequacy, Health Policy, Health System, Hospital, Hospital Industry, Job, Job Loss, Job Market, Medicaid, Medicare, Pandemic, Underinsured, Unemployment, Unemployment Insurance, Uninsured • Leave a comment

https://www.healthcaredive.com/news/why-covid-19s-biggest-impact-on-healthcare-may-not-be-until-2022/582129/

This perfect storm of a shift in payer mix, the impending insolvency of Medicare and the inability of states to absorb the growing costs of Medicaid represent a tsunami of challenges.

With COVID-19 there has been unprecedented stress placed upon the healthcare system. The human and financial toll of the current crisis has been extraordinary. Yet, little attention has been focused on the impact of this virus on the viability of our healthcare financing system.

Three significant shifts in healthcare financing are occurring as a result of the pandemic’s economic impact. First, as a result of job losses, there will be a shift in commercial insurance to government-funded insurance programs. Second, revenue for funding Medicare, based on payroll taxes, will be significantly decreased. Finally, states will have less tax revenue to pay for Medicaid, threatening the viability of this program as well.

More than 30 million Americans have filed for unemployment since the start of the COVID-19 pandemic. According to a recent report, about 27 million people may lose their employer-sponsored insurance. 

This will result in millions of people seeking coverage through Medicaid programs, the individual marketplace or simply becoming uninsured. Healthcare providers have relied upon margins from commercial insurance to offset costs from poorer reimbursing government funded programs and uncompensated care.

With more than 156 million Americans receiving employer sponsored insurance at the start of this year, and given recent projected job losses, providers may see a 17% shift in payer mix. The reliance on commercial insurance and cost shifting has become a necessary way for providers to financially sustain operations. 

With a 35% margin with commercial insurance compared to Medicare, a 17% shift in payer mix on a trillion dollar spend would result in a substantial reduction in financial resources available to hospitals.

Almost half of healthcare expenditures already come from government programs. Medicare, the largest of these programs, is principally supported by taxes on payroll and social security benefits. With COVID-related job losses there will be a corresponding reduction in payroll tax revenues to the Medicare system. Reports from the Congressional Research Service submitted to Congress in May, with data used prior to COVID-19, projected that Medicare would become insolvent in 2026.

Analyses performed show that there will be a gap in Medicare revenues during the next three years (from the pre-COVID projections) of close to $150 billion. The result is that Medicare will become insolvent as early as 2022. Even by applying more conservative projections, such as recovering all job losses by the end of 2020 and payroll tax revenue holding steady at pre-COVID levels, Medicare still becomes insolvent in 2023.

State revenues, too, will be under real pressure with reduced tax revenues resulting from the current economic downturn. Medicaid programs are supported in part by federal funds, but also from general funds from the state. 
On average, states are projecting about a 10% reduction in revenues in 2020, rising to almost a 25% reduction in 2021. Even without considering the growth in Medicaid enrollment hitting states, this reduced tax revenue will make sustaining current Medicaid program funding increasingly difficult.

This perfect storm of a shift in payer mix, the impending insolvency of Medicare by 2022 and the inability of states to absorb the growing costs of Medicaid represent a tsunami of challenges for the health system. Looking at this new reality, it is clear that our system for financing healthcare is severely broken and we must identify solutions to sustain access to medical care for our citizens.

This will be a challenge of a generation and we will need strength, courage and bold ideas to get through this. Pandemics have a way of changing a society’s political, economic and sociologic outlooks, and COVID-19 will be no different.