The release by CMS (Medicare) of hospital charges and Medicare payments this week deserves a response, partly because the figures are wrong.  While most of the newspaper reports focused on the gigantic differences between what hospitals charged and what they were paid, the real story is the irrational and nonsensical pricing of the CMS central planners.  Also notable is that while this story appears to bash the hospitals to some degree, the true amounts they receive from Medicare are hidden, as the prices released don’t include the uncompensated care kickbacks or the provider tax rebates.  

The witholding of these amounts from the final numbers makes the payments to certain hospitals (physician-owned facilities like the McBride Clinic Orthopedic Hospital who don’t accept this money looted from the taxpayer) look high compared to the corporate and not-for-profit hospital payments, as their actual payments for the procedures and diagnoses are much higher than shown.  It’s bad enough that the hospitals lie about their income, but to have the federal government join in on the act while posing as the great champions of price transparency is disgusting, although not surprising.

This New York Times article about the CMS “revelation”asks the question, the answer to which followers of this blog now know by heart:  ”Why are the hospitals charging so much more than they know they will receive?”  If you are drinking the hospital Kool-Aide, you believe that this overcharging is justified to combat the discounts demanded by the insurance carriers.  You also believe that hospitals with large amounts of “indigent” care are charging more to offset these “losses.”  

But if you think that these giant hospital bills:

1) Provide the “losses” and red ink necessary to maintain the fiction of the not for profit status of these creators-of-personal-bankruptcy


2) Provide larger DSH (disproportionate share hospital), uncompensated care payments to the extent that the hospitals claim they don’t collect on their giant bills

…if you believe these two points, you know the true answer to the question posed by the NYT reporter. 

If you understand that the extent to which a hospital claims losses is the extent to which they collect DSH or uncompensated care payments, you also understand whythe patient with no insurance or no money at all, is likely to receive the highest bill of all, in order to maximize the take from the taxpayer!

There is a simple reason that the CMS pricing makes no sense.  True prices emerge from a market economy.  They are not imposed.  I have said many times that I won’t know if my online pricing is “right” or not until someone starts competing with me.  Prices send signals to the marketplace, signals indicating relative shortages and surpluses.  That the prices for various hospitals in the same community are not even close shows the truly fatal conceit of the CMS central planners.

Here’s the bigger question, though.  Why did CMS release this and why now?  I think that it is no mistake that the cost of health care was never discussed during the Obamacare debates.  Getting everyone “coverage” was the focus.  Now that “coverage” is mandated, cost is center stage.  Why?  

Imagine that you own an insurance company that has a good relationship with Uncle Sam.  Imagine that you have been successful in getting your government pals to mandate the purchase of your product (health insurance).  This is now a great revenue stream.  How do you maximize your profits, now?  How do you maximize your net?

You ratchet down the price paid for “care,” ideally to a price where few physicians or facilities will see patients or participate.  Presto!  You have fewer claims to pay and they are cheap! You are seriously in the money, now.  Lots of premiums rolling in, very few claims paid out. Simple math.  

This is, of course, how HMO’s and Medicaid work.  HMO’s collect premiums, pay so poorly that few physicians will participate and then actually pay some doctors a bonus to the extent that care is denied.  This creates huge profits for the home office. 

Medicaid vendors are typically paid a price per head.  In Arizona, for instance, this number is about $8000/ head.  If the physicians are paid a pathetic amount, few will participate and this will result in subtle price rationing where few claims roll in and long lines form.  This creates gigantic profits.

This is the whole idea behind Obamacare.  Make everyone buy insurance, then use the IPAB (independent payment advisory board) to step in to make sure that prices paid are below the market clearing price, using this low price as a rationing tool.  ”Best practices” will also eliminate many of the health care services that people need and want and the “health researchers,” if they want to keep their government grants will find whatever they are paid to find, that mammography or prostate screenings are not necessary for instance.  This has already begun.  My personal favorite rationing tool is “pay for performance,” where the sickest of patients, those needing the care can’t get near a physician, as doctors increasingly shy away from complicated patients who might damage their “profile.”

You would think that a bankrupt program like Medicare would be looking for the best deals they can find.  This revelation by CMS shows the effects of years of lobbying by the hospitals and other connected players: prices all over the place.  Hospitals are paid 40% more for physician services than private practice physicians are paid.  Wouldn’t you think that in order to save 40% on physician services, Medicare would seek out the private practitioners and shun the hospital employed doctors?  Chemotherapy administered by a hospital is paid at a 40% greater rate than at a private physician clinic.  Seems like Medicare would save a bundle by keeping patients away from the hospital chemo units.  Our online prices are half what the big hospitals are paid by Medicare for the same surgeries.  I could go on and on.  

These federal programs are not about getting care for the poor and elderly, as much as they are about funneling money to connected cronies in the medical industry.   This revelation from CMS reveals just as much about the government as it does about the hospitals.  I don’t think that was their intention, though.

G. Keith Smith, M.D.