Big Hospitals Bully Private Insurers: Medicare Watchdog

Mark Miller, the United States' top Medicare watchdog, says big, growing hospital companies are getting too much bargaining clout over commercial payers.

The big hospital companies' ability to shrug off commercial insurer negotiators in many markets is so great that it's reducing the efficiency of the hospitals in those markets, Miller says.

"It is imperative that Medicare continue to restrain payment rates for hospitals," Miller says in a written statement he gave to the House Ways and Means Subcommittee on Health.

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Hospital profit margins for all payers increased to an average of 7.3% in 2014, a 30-year high, "in part because of hospitals' increasing market power resulting from continued hospital consolidation," Miller said.

Miller is the executive director of the Medicare Payment Advisory Commission, or MedPAC.

Congress included the law creating the commission in the Balanced Budget Act of 1997. The 17 members of the commission are supposed to help members of Congress understand what's happening at Medicare, and to suggests ways to improve the quality of the care provided and lower the cost.

Joe Swedish, the chief executive officer of Anthem Inc., a big insurer, has argued that one reason for the company's unsuccessful effort to acquire Cigna Corp. was a need to increase the company's ability to negotiate with big hospital chains.

Miller says in the written statement that big hospitals have so much more market power than the commercial insurers that they can make commercial insurers pay reimbursement rates that are about 50% higher than the Medicare rates.

"When a hospital receives higher payments from commercial payers, the financial pressure on the hospital is lower," Miller says. "It therefore has less incentive to keep its costs low."

In the hospitals with high private-payer profits from 2009 through 2013, there was evidence that the hospitals ended up with high expenses overall, not just high rates for commercial insurers, Miller says.

The hospitals with the high private-payer profits charged Medicare rates that were about 2% higher than the national median.

Even though the high-profit hospitals charged Medicare more than the typical hospital, they ended up with Medicare profit margins that were 8% lower than the median, Miller says.

The hospitals with low private-payer margins charged Medicare rates that were about 9% less than the national median, and they ended up with Medicare profit margins that were about 6% higher than the national median, Miller says in the written testimony.

Miller also testified in person before the Health Subcommittee.

At the subcommittee hearing, which was held in Washington on Thursday and streamed live on the web, Miller talked to Rep. Pat Tiberi, R-Ohio, the subcommittee chairman, about MedPAC's concerns about free-standing emergency rooms, or emergency rooms that operate separately from their parent hospitals.

MedPAC believes the free-standing emergency rooms may play a useful role in some areas, such as rural areas, Miller said.

The commission believes, however, that the owners often take advantage of their position, and Medicare rules, to charge Medicare plan enrollees high rates, and to surprise privately insured patients with big out-of-network bills, Miller said.

The commission wants Medicare program managers to set up a system they can use to distinguish between claims from ordinary emergency rooms and claims from free-standing emergency rooms, so they can track free-standing emergency room claim trends, Miller said.

Also at the hearing, Miller talked about the Medicare Advantage program. The program gives private insurers a chance to offer coverage that serves as an alternative to traditional Medicare coverage. Miller said he believes the Medicare Advantage program issuers offer consumers an important alternative to traditional Medicare coverage.

In the past, Medicare program managers spent significantly more on Medicare Advantage plan enrollees, Miller said.

In recent years, contracting changes have narrowed the quality-adjusted gap to only about 2%, Miller said.

The House Ways and Means Committee posted a copy of Miller's testimony on the web. The committee posted a video recording of the video on YouTube.

— Read MedPAC Measures Medicare Advantage Risk Score Inflation on ThinkAdvisor.

Big Hospitals Bully Private Insurers: Medicare Watchdog

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